When certainty is uncertain – capitalising on the superannuation rules whilst you can
With the chances of the Federal Election likely to be around the same time as Federal Budget in May 2019, more grey clouds of uncertainty are in the air. So now may be the time to capitalise on the certainty and look to start your SMSF’s year end planning a little earlier and consider the following:
Maximising the concessional contribution cap
The concessional contribution cap is $25,000 for all ages* and includes the 9.5% superannuation guarantee, salary sacrificed contributions and personal concessional contributions.
As such one can “top-up” their concessional contributions by making extra salary sacrificed contributions and personal concessional contributions.
The criteria for claiming personal concessional contributions was widened by the removal of the “10% rule” whereby this rule previously limited the deductions to self-employed individuals with no more than 10% of their income coming from salaried employment.
As such individuals can now claim a personal tax deduction if they are:
- less than 65 years of age; or
- if aged 65 but under age 75, they need to satisfy the work test*
*the work test is where an individual must be gainfully employed for at least 40 hours during 30 consecutive days during the financial year), and before the contributions is made.
For the deduction to be permitted, individuals must formally notify their SMSF of this wish and submit a signed notification of intent to claim the deduction prior to the lodgement of their personal income tax return for the year and no later than the end of the following financial year.
Making additional non-concessional contributions
From 1 July 2018, the making of non-concessional contributions (“NCCs”) is not as straight forward as it was before. Now, a SMSF member must take into account their entire total super balance (“TSB”) across all their superannuation accounts, and make sure it is within their TSB limits of up to $1.6m, before making a NCC.
Though the general annual NCC cap is $100,000 there may be an opportunity for members under age 65 to bring forward their caps if their TSB is:
- less than $1.4m: access to $300,000 cap (over 3 years)
- greater than or equal to $1.4m and less than $1.5m: access to $200,000 cap (over 2 years)
- greater than or equal to $1.5m and less than $1.6m: access to $100,000 cap (no bring forward period and the general NCC cap applies)
- greater than or equal to $1.6m: no NCCs permitted.
An individual’s TSB is determined on 30 June of the previous financial year.
Bring forward non-concessional contribution provisions for those turning 65
Particular care must be taken should an individual wish to trigger their bring forward provision in the year they turn 65. This is best illustrated by this example:
Jeff turns 65 on 1 May 2019 and has not triggered any bring forward provisions in prior years and his total super balance on 30 June 2018 was $1.2m. He’s been lucky and won $250,000 in Powerball in February 2019 after playing the same numbers for the last 10 years. Therefore, Jeff could:
- trigger his bring forward and contribute the full $250,000 before he turns 65 (ie. on or before 30 April 2019) without having to meet a work test; or
- he could space out the contribution over a 3 year period but then he would need to meet the work test to contribute post his 65th
From 1 July 2018, a one off non-concessional contribution of up to $300,000 from the sale of their home for individuals (or up to $600,000 for a couple) age 65 and over will be available under this scheme. These contributions do not count towards the non-concessional contribution caps nor are they affected by the total superannuation balance test.
Banking Royal Commission
Now that the dust has begun settling on the Banking Royal Commission announcements last month, the self-managed superannuation fund (“SMSF”) industry can rest easily.
Though the investigations weren’t aimed at SMSFs specifically, the superannuation industry as a whole has been targeted at the financial advice level and professionalism of financial advisers. This review reiterates that it’s important that all SMSF trustees understand their roles and responsibilities that come with having their own fund, and to seek the assistance of qualified professional financial advisers should they be unsure.