Save on Tax this year with this Super Strategy!
MAXIMISE DEDUCTIBLE SUPER CONTRIBUTIONS
The concessional superannuation cap for this financial year is $27,500 for people of all. From 1 July 2022, the general concessional contributions cap is $27,500 for all individuals regardless of age. Do not go over this limit or you will pay more tax next year! The non-concessional contributions cap for 2023 is still $110,000 for people up to the age of 67. 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 for a discussion with your financial planner or Super Fund support team.
Unfortunately, AWOTE for the December 2022 quarter wasn’t quite high enough for the concessional contributions cap to be indexed from $27,500 to $30,000. This means, subject to any changes in the Federal Budget in May, the concessional cap will remain at $27,500 in 2023/24. It also means the non-concessional contributions cap for 2023/24 will remain at $110,000 (because it’s always four times the concessional cap). Combined with the general transfer balance cap increasing to $1.9m on 1 July 2023.
The full co-contribution rate of $500 applies for income up to $42,016 and the partial co-contribution applies for income up to $57,016 for the 2023 tax year. To qualify for the super co-contribution in a financial year, you must meet all of the criteria.
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.
A DEDUCTION FOR ANYONE
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. If you are 75 years old or older, you can only claim a deduction for contributions you made before the 28th day of the month following the month in which you turned 75.
For the contribution to be counted towards the employee’s 2023 contribution cap, it must be received by the fund by 30 June 2023. This means even if you’re not in business, you can access these savings and get a bigger refund for your effort.
There are age-related conditions under which your super fund can accept your contributions. A work test still applies to individuals aged between 67 and 75 years who wish to claim a deduction for personal superannuation contributions. The work test that applied to accepting non-concessional and salary sacrifice contributions before 30 June 2022 no longer applies from 1 July 2022.
To meet the work test exemption criteria, you must have:
- satisfied the work test in the income year preceding the year in which you made the contribution
- a total super balance of less than $300,000 at the end of the previous income year
- not relied on the work test exemption in a previous financial year.
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 $27,500
- The total superannuation balance is less than $500,000 at 30 June 2022 of prior financial year
- The individual has an unused concessional contribution cap available from any or all of the 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 2023 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
If you are aged 55 years or older, you can contribute $300,000 from the proceeds of the sale of your home to your superannuation fund.
Downsizer contributions are excluded from the existing age test, work test, and the transfer balance threshold (but are limited by your transfer balance cap).
For couples, both members of a couple can take advantage of the concession for the same home. That is, if you and your spouse meet the other criteria, both of you can contribute up to $300,000 ($600,000 per couple). This is the case even if one of you did not have an ownership interest in the property that was sold (assuming they meet the other criteria).
Sale proceeds contributed to superannuation under this measure count towards the Age Pension assets test. Because a downsizer contribution can only be made once in a lifetime, it is important to ensure that this is the right option for you.
Let’s look at the eligibility criteria:
- You are 55 years or older (from 1 January 2023) at the time of making the contribution.
- The home was owned by you or your spouse for 10 years or more prior to the sale – the ownership period is generally calculated from the date of settlement of purchase to the date of settlement of sale.
- The home is in Australia and is not a caravan, houseboat, or other mobile home.
- The proceeds (capital gain or loss) from the sale of the home are either exempt or partially exempt from capital gains tax (CGT) under the main residence exemption, or would be entitled to such an exemption if the home was a post-CGT asset rather than a pre-CGT asset (acquired before 20 September 1985). Check with us if you are uncertain.
- You provide your super fund with the Downsizer contribution into super form (NAT 75073) either before or at the time of making the downsizer contribution.
- The downsizer contribution is made within 90 days of receiving the proceeds of sale, which is usually at the date of settlement.
- You have not previously made a downsizer contribution to super from the sale of another home or from the part sale of your home.
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 2023 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 Advisors