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30 June 2023 – Super Strategy Checklist

Written by Ivan Fletcher

Note there are some changes to the Contribution Rules this Financial Year.
Here is a recap of the Contribution Caps & Age restrictions :

  1. The Age limit for contributions – As of 1/7/22 (this financial year) the rules have changed in regard to the age limit for personal contributions.

Personal voluntary NON-CONCESSIONAL contributions can now be made up to the age of 75 (previously 67 and not so long ago  65).

However, if you wish to claim a tax deduction for personal contributions (and therefore reclassify them as personal CONCESSIONAL  the WORK TEST (40 hours of gainful employment within 30 consecutive calendar days) must be satisfied for persons between age 67 to  74 in regards to voluntary contributions.  The Work Test also applies to voluntary Salary Sacrifice contributions.

2. The Concessional Contribution Cap remains at $27,500 for this financial year.
If you regularly aim for the maximum each year you may need to consider an additional top-up.

3. The Non-Concessional Contribution Cap likewise has remained at $110,000 (4 x the concessional Cap of $27,500)

4. The 3 year Bring Forward Rule (for non-concessional) 3 years of remains at $330,000
($3 x $110,000)

5. Total Super Balance Cap – If your total super balance (across all super and pension accounts) is above $1,700,000  as at the previous 30 June (i.e. 30/6/22) then you CANNOT make any voluntary personal non-concessional contributions.

Tabled below is a list of super strategies for consideration before 30 June  

1.Government’s co-contribution scheme (do you qualify) ?

2.Reducing Taxable Income with Additional CONCESSIONAL super contribution (including Catchup Concessional contributions from prior years)

3.Spouse contributions – providing a tax rebate for the higher income spouse

4.Making Large NON-CONCESSIONAL Contributions

5.Re-Contribution Strategy

6.Rebalance Super Levels between Spouses (re-contribution Strategy)

7.Super splitting (to spouse only)

 1. DO YOU QUALIFY FOR THE GOVERNMENT’S CO-CONTRIBUTION SCHEME?

The Strategy

By making a personal contribution up to $1,000 you may receive a government co-contribution up to $500.  This equates to a 50% return on your money and is still one of the more effective super strategies available.

  • The maximum benefit applies if your income is under $42,016.
  • The benefit cuts out if your income is above $57,016.

Key Criteria

  • you pass the two income tests described below
    • Income Threshold Test – your income (including fringe benefits, and salary sacrifice, etc) is under the higher threshold of $57,016
    • 10% Eligible Income test – 10% or more of your total income must come from employment-related activities, carrying on a business, or a combination of both.
      (This does not include distributions from a family trust or non-business partnership).
  • you are less than 71 years old at the end of this financial year (30/6/23)
  • your Total Super Balance (including Pension accounts) is less than $1,700,000 at the beginning of the financial year).

For full details on the criteria or how to calculate your potential benefit refer to the separate article link below.

Co-contribution Scheme 2023

2. REDUCING TAXABLE INCOME WITH PERSONAL SUPER CONTRIBUTIONS

If your taxable income is in the higher tax brackets (at least above $45,000 taxable income) you may wish to consider some additional personal contributions (funded from personal accounts) which can may be classified as “Concessional” allowing for a tax deduction in your personal tax return.

 Key Criteria

  • under age 67 or working (between 67 and 74 and satisfy the work test of 40 hours of gainful employment  in 30 consecutive calendar days).    and
  • have room left in your concessional contributions cap ($27,500) and
  • have enough assessable income to be able to benefit from the tax deduction.

Eligible Amount  – Example

  • Total Concessional CAP is $27,500 p.a.
  • Deduct all other Concessional Contributions (example $10,000 including all employer and salary sacrifice contributions).
  • The remainder ($17,500 per above example) is the available amount for personal Contribution (that you can claim as a deduction).

2.A.  Catchup Contributions – Carry Forward Unused Concessional Cap

In the event that you have not fully utilised your maximum Concessional CAP in any of the previous 4 years (18/19,  19/20  20/21 or 21/22) , the unused component can be carried forward to this financial year increasing your Concessional CAP for the following year.

This can be advantageous if you anticipate landing in a higher tax bracket in a future year (eg in the event of a one off event such Bonus income or, Capital Gains Event).  This is only applicable if your super balance is under $500,000 at the end of the previous financial year (30/6/22).

For example  –   if you have $10,000 of concessional contributions from your employer in each of the 4 previous financial years  (18/19,  19/20, 20/21 and 20/22), this means $15,000 remains unused for each of the first 3 years and $17,500 (for the last year which had the higher concessional CAP of $27,500.  Therefore a combined total of $62,500 of additional contributions could be carried forward to financial year over and above the regular $27,500 CAP for this financial year.

The Process for Personal (Deductible)  Contributions

  1. Make a personal contribution to a complying superannuation fund (must be received by the super fund by 30 June).
  2. Submit a valid Notice of Intent form to the superannuation fund trustee within required timeframes

A Notice of intent to claim a deduction for personal super contributions will not be valid unless it is submitted in writing to the fund trustee by the earlier of:

  • the end of the day the taxpayer lodges their income tax return for the income year in which the contribution was made or
  • the end of the next income year (30 June) following the year of contribution.
  1. Receive Confirmation from the Super Fund trustee that the valid notice of intent has been received.
  2. Use the above confirmation back from your Super fund as evidence to claim a ‘personal’ tax deduction in your tax return.

Warning – The maximum allowable in Concessional Contributions is $27,500 per person (inclusive of existing employer and salary sacrifice contributions) for this financial year unless you qualify for catchup contributions (as explained above).

Tip 1 – Make sure your tax agent  is aware of any personal concessional contributions you have made – pointless exercise if you don’t actually claim the deductions – your super fund should provide a summary statement.  You will have to complete a form “intention to Claim a Tax Deduction”  to advise your super fund you intend to claim the tax deductions.

Trap 1.  Make sure you account for your employers ‘Super Guarantee’ (SG) contributions in your calculations including salary sacrifice.

Trap 2  – Make sure you account for any life insurance premiums that may be structured under a super policy.

Trap 3 –  Check Timing – Your pay slip does not necessarily match the timing of when the super fund receives employer or sacrificed contributions, so if you are running up to your Concessional CAP, be sure to check in with your super fund on the count so far (your pay slip may mislead you (for eg. Last years June contribution may have arrived in July and therefore counted in this year’s Cap).
Check your contribution classifications are correct

Contributions received by your super fund will be classified as ‘concessional’ (tax deductible to the payer) or ‘non-concessional’ (not tax deductible).
If your contributions have been incorrectly classified as ‘non-concessional’, it can prevent your tax agent  from claiming the deductions.  This is a simple and common mistake.

3 . SPOUSE CONTRIBUTIONS REBATE

If your spouse’s income is under $37,000, you can make a contribution (to the lower earning spouse) of up to $3,000 and claim up to a maximum 18% rebate ($540 maximum).  This phases out to nil once the receiving spouse’s income is above $40,000.  In assessing Spousal income, you must also include any reportable Fringe Benefits or additional contributions (or salary sacrifice) above the mandated Super Guarantee (SG) levels.

By making a “Spouse Contribution”  to Spouse 2 (lower income spouse) of $3,000,  Spouse 1 (Higher income spouse) can claim a tax rebate of $540 contribution on their tax return.

Important

  • Your superannuation fund will have a specific code for “spouse contributions” which will need to be used.
  • This contribution type will also count towards your non-concessional CAP of $110,000 for the year.
  • You CANNOT claim a tax deduction for a Spouse contribution.  Instead the higher income espouse  will claim a REBATE in their tax return for that year.

4. MAKING LARGE NON-CONCESSIONAL CONTRIBUTIONS

If you have been considering making a large NON-CONCESSIONAL contribution to super with cash you are sitting on or about to receive from sale of investment assets or a windfall gain such as an inheritance, you can make a personal non-concessional contribution up to $110,000 per annum per person.

This now accessible to anyone under age 75 (no work test required) provided you have not exceeded the Total Superannuation Balance Cap of $1,700,000.

3 Year Bring Forward Rule
For those with enough cash to consider the 3 year bring forward provision, you can contribute up to $330,000. 

Warning – If you exceed the Maximum / CAP for non-concessional contributions, the penalty is heavy, with the excess being taxed at the highest marginal tax bracket (+ medicare levy) if the funds remain in superannuation.  The ATO will allow the release of any identified excess from super in order to assist in avoiding this penalty.

5. RE-CONTRIBUTION STRATEGY

This strategy allows you to reduce the amount of ‘Taxable Component’ applicable to your super balance by firstly withdrawing a Lump Sum from Super (with a high ’taxable’ component). This is dependant upon you being above preservation age and meeting a condition of release from your super.  Secondly the funds are contributed back to super as a non-concessional ‘tax free’ contribution. This strategy can be used to maximum effect by utilising the 3 year bring forward provision allowing up to $330,000 to be withdrawn and re-contributed  back to super.  It is most commonly applicable to persons between the ages of 65 and 75 or between 60 and 65 and have met a condition such as retirement.

This strategy could benefit your children in the form of reduced taxes upon ultimate inheritance of any super balance or in the case of retirees under age 60, reduce the assessable amount of your pension income.  There are strict criteria to qualify for this strategy in terms of both the withdrawal and the re-contribution.

Caution : The qualifications for this strategy are specific and complex and the tax consequences/penalties can be significant (especially under age 60). It is recommended this strategy be discussed and implemented through an adviser.

6 .  REBALANCE SUPER LEVELS BETWEEN SPOUSES

This strategy (much like the re-contribution strategy above) will be dependant upon your capacity to qualify for ‘unpreserved’ Lump Sum withdrawals (free of tax) and your spouse’s qualification to contribute to super (including the ‘3 year bring forward provision” per above).

The benefits are two-fold :

(a) increasing the tax-free component of your collective super balances  (benefiting potential future children beneficiaries with reduced tax).

(b) lowering your current Super balance further under the $1.7 Million Total Super Balance CAP allowing further contributions to Super in the coming years.

(c) sheltering assets to a younger spouse for Centrelink benefits.

Caution : The qualifications for this strategy are specific and complex and it is recommended that they be discussed and implemented through an adviser.

7 . SUPER SPLITTING (TO SPOUSE ONLY)

Super splitting is the process of rolling over your previous year’s “Concessional” contributions (less the 15% tax) to your spouse.  Once 30 June 2023 arrives, the window for rolling over last years’ 2021/22 contributions to your spouse will close.

Reasons why you would consider this:

  • Useful strategy in levelling out super balances between spouses as a natural hedge against legislative risk.
  • Assist in keeping a super balance under  various thresholds to support other contribution strategies in future years (eg keeping balance under $500,000 to support the carry forward of unused Concessional CAPS (per Strategy 2A above).
  • Spousal age gap:
    • Shelter assets to younger spouse (for Centrelink benefits), or
    • To increase accessibility of super by splitting to the older spouse – closest to preservation age. Similarly super splitting to an older spouse may allow you to get the assets into the tax-free arena of Allocated Pensions (no tax on earnings of the asset base).

 

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