Save on Tax this year with this Super Strategy!
MAXIMISE DEDUCTIBLE SUPER CONTRIBUTIONS
The concessional superannuation cap for next financial year is $27,500 for people of all ages up to the age of 66, but until 30/06/2021 it’s still $25,000 for this financial year. Do not go over this limit or you will pay more tax next year! The non-concessional contributions cap for 2021 is still $100,000 for people up to the age of 66. Individuals with a total superannuation balance of more than $1.7 million are not eligible to make non-concessional contributions. If you’re not sure, you should seek or call a specialist with a discussion with your financial planner or Super Fund support team.
The full co-contribution rate of $500 applies for income up to $41,112 and the partial co-contribution applies for income up to $56,112 for the 2021 tax year.
Note that employer super guarantee contributions are included in these caps. Where a concessional contribution is made that exceeds these limits, the excess is included in your assessable income and taxed at your marginal rate, plus an excess concessional contributions charge. Still not sure, that is ok as we understand it can get confusing and recommend you seek a professional for guidance, feel free to book online now.
Personal Superannuation Contributions Deductions for personal superannuation contributions are now allowed for all individuals under the age of 75 (including those aged 65 to 74 who meet the work test). Previously, a deduction was only available to individuals whose employment income was less than 10% of their total income.
For the contribution to be counted towards the employee’s 2021 contribution cap, it must be received by the fund by 30 June 2021. This means even if you’re not in business, you can access this saving and get a bigger refund for your effort.
What Are The New Carry-Forward Unused Concessional Caps?
From 1 July 2018, individuals are able to carry forward their unused concessional cap for up to 5 years for use in a future financial year.
In this case, an individual’s concessional cap can be increased if:
- The actual concessional contributions are greater than the standard cap $25,000
- The total superannuation balance is less than $500,000 at 30 June 2021 of prior financial year
- The individual has an unused concessional contribution cap available from any or all of prior 5 financial years.
EXCESS CONCESSIONAL CONTRIBUTIONS
The excess is counted as personal assessable income and taxed at your marginal rate plus some additional charges, received as a tax offset to reflect the 15% tax paid on these contributions by the super fund. You can elect to withdraw the excess from your fund but, if you elect not to, it will also count towards your non-concessional contribution cap.
Note that these rules have changed several times in recent years so this treatment will not necessarily be applicable for concessional contributions you have made in the past.
Excess non-concessional contributions
The excess is taxed at 45% plus 2% for Medicare; however, before levying this tax, the ATO will give you the option of having the excess contributions plus a notional amount (calculated by the ATO) to reflect investment earnings refunded to you.
Instead of being taxed the whole amount of the excess at the very high rates mentioned above, you may elect to refund and pay tax on the notional earnings. These will be taxed just like normal personal income, less a 15% tax offset.
What happens if I make an excess contribution?
If you contribute superannuation above the contributions cap, you’ll receive a letter from the ATO identifying the excess contributions. At this stage you can either:
- Elect to pay additional taxes personally
- Elect to have the money released from super by completing the appropriate form and returning it to the ATO (This is available through MyGov or your accountant). It is important that no money is released from the superannuation fund at this step.
The ATO will process the form and send a release authority to the superannuation fund. The superannuation fund must then release the money to the ATO within 21 days alongside a form documenting the release.
The ATO will process the release, deduct any additional taxes (above the 15% already paid by the super fund) and release any residual amounts back to you as though it were a personal tax refund from the ATO.
SPOUSE CONTRIBUTION SPLITTING
Help increase your spouses super balance for 2021. Contribution splitting allows you to split your concessional (before-tax) contributions from your accumulation super account with your spouse. Some advisors use this to level out member balances between husband and wife.
To access this you must be lodged the application with the super fund within the financial year after the financial year in which the contributions were made, or in the financial year of the contributions made, if your entire benefit is being rolled over or withdrawn.
The maximum splittable amount is the lessor of:
- 85% of your concessional contributions
- Your concessional contributions cap for the year
- The taxable component of your interest.
In the case of spouse contribution splitting, the contribution is treated as a rollover into your spouse’s account and doesn’t count towards either the concessional contribution cap or the non-concessional contribution cap of the receiving spouse. It is classified as a 100% taxable component into the receiving member’s account. Only one contribution split can be made per financial year.
Conditons do apply, the receiving spouse must not be:
- aged 65 years or more
- aged between the preservation age and 65 and ‘retired’.
DOWNSIZE YOUR HOME
From 1 July 2018, people aged 65 or over can make contributions into their super account of up to $300,000 ($600,000 for a couple) using the proceeds from the sale of their main residence. Although these ‘downsizer’ contributions are considered non-concessional (after-tax) contributions, they are in addition to any voluntary contributions made under the current non-concessional contributions cap $100,000 ($110,000 in 2022).
Downsizer contributions can be made regardless of your annual non-concessional contributions cap position and whether you meet the requirements of the work test. If you are aged 75 and over, you can still make a downsizer contribution even if you have never worked.
HIGH INCOME EARNERS
Division 293 tax is an additional tax on super contributions, which reduces the tax concession for individuals whose combined income and contributions are greater than the threshold. The way it works is that an additional 15% tax is charged on an individual’s taxable contributions when their income for 2021 FY is $250,000 or above.
Your income is assessed as Division 293 income based on the sum of your:
- Taxable income (assessable income minus allowable deductions)
- Total reportable fringe benefit amounts
- Net amount on which family trust distribution tax has been paid
- Net investment loss
- Net rental property loss
If your income exceeds $250,000, an additional 15% tax applies to the lessor of your:
- Income above $250,000
- Low-tax contributions (eg. Excess concessional contributions)
Not sure how you will know if you have to pay Division 293 tax? The ATO will send you a notice of assessment once they have received both your income and contribution information for the year.
This article is provided as general information only and does not consider your client’s specific situation, objectives or needs. It does not represent accounting advice upon which any person may act. Implementation and suitability requires a detailed analysis of a client’s specific circumstances. © Business Edge Accountants