The end of the financial year (EOFY) always seems to crop up faster than it should. Understanding what you could do before and after 30 June 2015 can provide the icing on the cake for employees, investors and those in small business. Such things as bringing forward tax deductions or delaying the receipt of income within the rules can mean less tax this year. When it comes to superannuation, make sure you maximise the tax deduction this year or salary sacrifice the right amount so you get the best possible outcome and don’t end up with tax penalties.
Increased tax deductible contributions cap for anyone 50 and above
For anyone who was under 49 on 30 June 2014 the maximum amount of tax deductible contributions that can be made to superannuation without penalty is $30,000. However, for anyone who is at least 49 or older on 30 June 2014 the maximum amount is $35,000. This includes amounts your employer may make as salary sacrifice, Superannuation Guarantee or you make as personal deductible contributions, if you qualify. If you wish to maximise your contributions before June 30 make sure you talk to your professional adviser so that your salary sacrifice agreement with your employer allows the maximum to be salary sacrificed.
If you are older than 65 you will need to meet a work test to contribute to super in most cases. You need to work for at least 40 hours during 30 consecutive days at any time during this financial year to make tax deductible and non-deductible contributions to super.
Claiming a tax deduction for personal superannuation contributions
If you are self-employed, an investor, in receipt of a pension and receive less than 10% of your income, fringe benefits and other related payments from employment you may qualify for a personal tax deduction to superannuation. If you intend to claim a tax deduction make sure you are eligible to claim a tax deduction and seek advice if you are unsure. You need to notify the fund of the amount you wish to claim as a deduction before the end of the next financial year, that is, before 30 June 2016. Make sure you keep all relevant paperwork to save stress when the time comes to see your accountant or tax agent.
Making after tax contributions to super
You can make after tax contributions to super which could come from your personal savings, transferring personal investments, an inheritance or from the sale of investments. This financial year the maximum personal after tax contribution is $180,000, however, if you are under 65 you can contribute up to $540,000 over a fixed three year period. This allows you to make substantial contributions to super and build up your retirement savings. The way it works is that if you are under 65 and make total after tax contributions of more than $180,000 in a financial year the bring forward rule is triggered. This allows you to make non-deductible contributions of up to $540,000 in total over a fixed three year period commencing in the year in which you contributed more than $180,000.
However, if you triggered the bring forward rule in 2012-13 or 2013-14 you will be limited to $450,000 of bring forward contributions as the post-tax contribution limit was $150,000 in 2013-14.
Beware of excess contributions tax
Anyone making large superannuation contributions should exercise extreme care for any type of contributions to avoid excess contributions penalties. This can apply to any tax deductible and non-tax deductible contributions made to super.
Even though both excess concessional (tax-deductible) and excess non-concessional (post-tax) contributions can be refunded and taxed at your personal tax rate instead of at a penalty rate, making sure you do not exceed the contribution caps will save you both the money and time of dealing with excess contributions.
If your adjusted income is less than $49,488 you may like to take advantage of the Government co-contribution. You can do this by making after tax (non-concessional) super contributions before the end of the financial year. For every dollar of contributions that are eligible, the Government contributes 50 cents to your superannuation up to a maximum government co-contribution of $500. For 2014/15, the maximum government co-contribution is payable for individuals on incomes at or below $34,488 and reduces by 3.33 cents for each dollar above this, cutting out completely once total adjusted income for the year exceeds $49,488.
Drawing superannuation pensions
If you are in pension phase make sure the minimum pension has been paid to you for this financial year. By not receiving the required minimum pension any income earned on your pension investments in your superannuation fund will be taxed at 15% rather than being tax free if the pension rules are met by the fund.
Drawing superannuation lump sums
Once you reach 60 all lump sums from superannuation are tax free. However, before age 60 any lump sums that include a taxable component can be taxable. The taxable component includes the tax deductible contributions plus any income that has accumulated on your superannuation benefit. No tax is payable on taxable amounts of up to $185,000, in total, you receive prior to age 60. This amount is indexed annually.
If you are eligible to draw amounts from superannuation you may like to defer receiving the amount until after reaching age 60 or until a later financial year when you may end up paying a lower rate of tax.
SMSF fund expenses
For SMSF members in the accumulation phase, tax deductions for expenses are usually not significant, but it’s important to ensure expenses are actually incurred or paid before 30 June to be deductible in the current financial year.
Correct ownership of assets
The tax office has increased their scrutiny over the name being recorded on investments held by SMSFs. In July 2013, legislation was introduced to provide the ATO with the power penalise trustees who incorrectly maintain super fund assets in the incorrect name.
You should review the fund’s bank accounts, investments, and any insurance policies owned by the fund and ensure the registered name is as follows:
as trustee for
Super Fund Name
Leased assets rented to related parties
Special rules exist which allow a commercial property owned by a super fund to be leased to a related party. You must, however, meet the following strict guidelines:
- There must be an ‘arms-length’ lease agreement
- Rent must be market rate
- All rent must be paid in accordance with the lease agreement
Please double check that all of the above conditions have been met and that any CPI increases in rent have been made and received by the super fund before 30 June 2015.
Failure to meet the above requirements may result in the property being deemed an in-house asset of the fund and in breach of the SIS legislation. We recommend that you speak to one of our specialists to plan this properly.
All assets must now be valued at ‘market value’ when preparing annual financial statements.
For assets such as real property, unless a significant event occurred that may change its value since it was last valued, a valuation is required every 3 years. For other assets, such unlisted investment where market prices are not readily available, it is recommended that an independent market appraisal is performed annually.
If the SMSFs assets falls outside these guidelines, you should arrange an independent valuation as soon as possible.
Off-market share transfers to SMSFs
If you have made, or intend to make, in-specie contributions to your super by transferring listed shares into the fund please note the following:
- For contributions which are intended to be personal contributions, these transfers should come from your individual names to the super fund (i.e. not from a trust to the super fund.)
- These shares must be transferred at market value. We recommend that they be transferred at the closing market value for the day prior to the date shown on the standard transfer form.
- We also recommend that all share transfers be carried out well in advance of 30 June.
Unlisted shares cannot be transferred in-specie to your self-managed super fund.
How can we help?
If you need assistance with any aspect of your end of year superannuation tax planning, please feel free to call us to arrange a time to meet so that we can discuss your particular requirements in more detail.