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Ivan Fletcher

30 June 2024 – Super Strategy Checklist

Written by Ivan Fletcher

As we approach the end of the financial year, it is worth taking a moment to evaluate Super Contribution strategies that might benefit you.   The first three strategies listed in this article are the most common strategies underutilised.

Firstly  a recap of the Contribution Caps & Age restrictions that apply this financial Year:

  1. The Age limit for contributions – As of 1/7/22 the rules changed in regards to the age limit for personal contributions.  Personal voluntary NON-CONCESSIONAL contributions can now be made up to the age of 75.

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.

  1. 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.
  1. The Non Concessional Contribution Cap likewise has remained at $110,000 (4 x the concessional Cap of $27,500)
  1. The 3 year Bring Forward Rule (for non concessional) 3 years of remains at $330,000 ($3 x $110,000)
  1. Total Super Balance Cap – has increased to $1,900,000.  If your total super balance (across all super and pension accounts) is above $1,900,000  as at the previous 30 June (i.e. 30/6/23) then you CANNOT make any voluntary personal non concessional contributions.  

SUPER STRATEGY CHECKLIST

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

  1. Government’s co-contribution scheme – Do you qualify ?
  1. Reducing Taxable Income with Additional CONCESSIONAL super contributions

(including Catchup Concessional contributions from prior years)

2A. Catchup Contributions – Carry Forward Unused Concessional Cap

  1. Spouse contributions – providing a tax rebate for the higher income spouse
  2. Making Large NON-CONCESSIONAL Contributions
  3. 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 non concessional 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 $43,445.
  • The benefit cuts out if your income is above $58,445.
  • The co-contribution is automatically applied to your Super account after you have lodged the tax return for the year.

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 $58,445.
  • 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 (30/6/24).
  • your Total Super Balance (including Pension accounts) is less than $1,900,000 at the beginning of the financial year).
  • You DO NOT claim a tax deduction for your personal non concessional Contribution.

 How to calculate and maximise your benefit 

This is made very easy for you by the following Government Website which calculates your benefit for you and how much you need to put in.  Remember to include any fringe benefits and any Salary sacrificed income in your income figure as well as any other taxable income.

ATO – Super Co-Contributions Calculator

The amount you put in yourself as a personal non-concessional contribution needs to be double the amount of your potential co-contribution benefit.  Maximum contribution is $1,000 for $500 co-contribution benefit.

  1. REDUCING TAXABLE INCOME WITH PERSONAL CONCESSIONAL SUPER CONTRIBUTIONSIf 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.

Before embarking on this strategy you need to know the following :

  • How much room is left in your concessional contributions cap ($27,500) and
  • An estimate of your taxable income for the year to ensure you have enough assessable income to be able to benefit from the tax deduction.

Key Criteria 

You may qualify to make a voluntary Concessional contributions to super via one of the following conditions at the time the contribution is made : 

·        Under age 67 OR

·        Between age 67 and 74 and have already satisfied the work test of  40 hours of gainful employment  in 30 consecutive calendar days  OR

·        Between age 67 and 74 and qualify for the Work Test Exemption

Work test exemption – Explained

·        You meet the work test in the previous financial year, AND

·        Your total superannuation balance (across all your super and/or pension accounts) is less than $300,000 (as of 1 July in the year of contribution) AND

·        The work test exemption has not been used in a previous financial year. 

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 5 years (18/19,  19/20  20/21, 21/22 or 22/23) , 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 Total Super Balance is under $500,000 at the end of the previous financial year (30/6/23).

Click on our article from our March 2024 Hudson Report: Last Chance for Catch Up Contributions from 2019.

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 spouse  will claim a REBATE in their tax return for that year.
  1. 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 $1,900,000 (as at 30/6/23).

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.

  1. 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 as early as  age 60 if you have met a condition of release 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 $1.9 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 2024 arrives, the window for rolling over last years’ 2022/23 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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