EOFY - your guide to deductible super contributions
Written and accurate as at: May 26, 2020 Current Stats & Facts
Superannuation contributions are a valuable tool for building tax-effective wealth. Most contribution plans should be executed by 30 June, a critical timeslot in any financial calendar. Now that the COVID-19 panic is subsiding and life begins to normalise somewhat, you may have time to consider your plans for the fast-approaching deadline. This article focusses on an overview of deductible super contributions and key considerations should they be of interest.
Concessional contribution
Concessional contributions are your regular tax-deductible contributions with a limit of $25,000 per year. This limit includes any contributions made by your employer via superannuation guarantee or salary sacrifice as well as any personal contribution which you chose to claim as a tax deduction.
Key considerations
- If you intend on using salary sacrifice to utilise your limit, then get in early as your employer may delay the payments. Check with your employer about making the final contribution in June rather than July (as they are only legally obliged to pay up to 28 days after the end of each fiscal quarter).
- If you make a personal contribution, then don’t forget to claim your deduction. If you make a personal contribution and chose to claim a tax deduction, you will need to lodge a Notice of intent to claim or vary a deduction for personal super contributions form. Ensure you claim a deduction before commuting to a pension or rolling to a new fund.
Concessional contributions are treated as income to your fund so will be subject to 15 per cent tax. If you earn more than $250,0000, you pay Division 293 tax, an additional 15 per cent tax on your contributions for income over $250,000.
Catch-up concessional contribution
From 1 July 2019, if you have below $500,000 in your superannuation, you can rollover the unused concessional contribution from the prior year. You can rollover up to five years from 1 July 2019; a total of $125,000 after five years.
Key considerations
- You must have less than $500,000 on 1 July of the financial year to rollover unused contributions from the prior year. Check your ATO portal on your myGov account for your unused concessional contributions and 1 July superannuation balance under the concessional contribution option in your superannuation section.
Spouse contribution
If your spouse earns less than $40,000 per year, you may be able to make a personal contribution of up to $3,000 to your spouse’s superannuation account and then claim a tax offset of 18 per cent up to $540 on your individual tax return.
Key considerations
- Your spouse’s income will be assessed based on their Adjusted Taxable Income. The spouse contribution counts as a non-concessional contribution to the recipients limit, and of course, their non-concessional contribution rules apply.
Reserve contribution (SMSFs only)
The reserve contribution strategy is ‘reserved’ for SMSF’s only and is arguably the most technical of the contributions. If you have an SMSF and you have had a significant income year and don’t expect one next year, the reserve contribution strategy may work.
If your SMSF allows reserving, your fund may be able to allocate a contribution to the ‘reserve account’ until 28 days after the end of the contributing month.
As an individual, you may be able to make up to $50,000 of contributions to your fund and claim a personal tax deduction for the full contribution without breaching the concessional contribution limit. In this case, you may be able to make a $50,000 contribution in June. The fund would immediately allocate $25,000 to your member account and $25,000 to the reserve account and then on 1 July allocate the remaining $25,000 to your member account.
Key considerations
- Check your SMSF trust deed to ensure your fund allows for a reserve contribution. If not, then you will need to update your trust deed before contributing.
- See the ATO’s most recent Taxation Determination TD2013/22 for more information.
Final considerations before making any contributions
Check your eligibility to contribute to super. Were you under 65 at the beginning of this financial year or you are between 65 and 75 and meet the work test (working 40 hours in a 30 day period during the financial year)?
Be sure to start planning early to avoid disappointment as far too often a transfer, BPay or cheque payment fails to clear before 30 June.
As always, get good advice. Speak with a qualified financial adviser or accountant as superannuation contributions are fraught with trips and traps.