With 30 June approaching, the team at Redwood have undertaken a full collaborative review for each of our clients. This process ensures that you enter the new financial year with confidence that all opportunities have been explored.
To give you an overview, we have compiled the following outline of the key strategic items that we have considered.
Concessional contributions can be paid by your employer or by you personally into your superannuation account. These contributions essentially reduce your personal taxable income by diverting income to your super, where it is taxed at 15% instead of at your marginal tax rate.*
The cap for the current financial year is $25,000 for individuals under the age of 65. If you are aged between 65 and 74 you can also contribute this amount if you meet the work test.
*If your adjusted taxable income for the financial year is over $250,000 you will receive an additional Division 293 tax assessment for 15% of your contributed amount, bringing the total tax payable to 30%.
Contribution splitting allows you to transfer up to 85% of your concessional contribution to your spouse if they are eligible to receive the transfer.
This is particularly beneficial given the $1.6 million pension transfer cap. Couples who have (or anticipate) a disparity in their super can reduce by splitting contributions to the spouse with the lower balance.
A reserving strategy allows you to bring your contribution cap from the next financial year forward into the present year. This allows you to claim a deduction of up to $50,000 for the current financial year.
This strategy is typically only available to Self-Managed Super Funds and can be beneficial in a number of scenarios. For example, if your taxable income for the current financial year is significantly higher than your anticipated income for the next year.
The cap for the current financial year is $100,000 for individuals under the age of 65 who had a total superannuation balance under $1.6 million as at 30 June 2017. As with concessional contributions, if you are aged between 65 and 74 contributions can be made if the work test is met.
Individuals who were under the age of 65 as at 1 July 2017 may also be eligible to trigger the 'bring forward' provision. This provision allows you to utilise the next two years' cap to contribute up to $300,000 in the current financial year. The exact amount that you can contribute under this provision is determined based on your member balance as at 30 June 2017.
If you have an adjusted taxable income of less than $51,813 and make a non-concessional contribution you may also be eligible to receive a government co-contribution.
If your income is less than $36,814 and you make a non-concessional contribution of $1,000, you may be eligible for a government co-contribution of up to $500.
If your spouse's adjusted taxable income is less than $40,000, you are able to make a non-concessional contribution of $3,000 on their behalf and claim a tax offset of up to $540.
This offset applies to both married and de facto spouses and is subject to eligibility rules including a requirement that your spouse's total superannuation balance was less than $1.6 million as at 30 June 2017.
A recontribution strategy is a method of converting the taxable component of your super balance into a tax-free balance. Essentially, it involves drawing a pension or lump sum and recontributing the amount as a non-concessional contribution.
This strategy can be beneficial from an income tax perspective, both for yourself and your estate.
Minimum Pension Payments
If your superannuation is in pension phase, it is essential that you meet your minimum pension obligations.
This is particularly important if you are receiving a retirement phase income stream (such as an account-based pension), as it is a requirement that you meet your minimum pension obligations for the associated income to remain tax free.
The CGT relief provisions are available to super funds which were affected by the $1.6 million transfer balance cap, or by the removal of the tax-exempt status for transition to retirement pensions.
The provisions essentially allow the trustees of the fund to make a nominal sale and then re-purchase of the fund’s investments on an asset-by-asset basis. This causes the fund to realise capital gains in the 2017 financial year, whilst a higher proportion of that fund is tax-exempt. The cost base is then reset to the market value of the shares on the transaction date.
CGT relief is not automatic and an election to apply it must be made on the fund’s 2017 tax return. The deadline for this election is 30 June 2018 (2 July 2018 due to the weekend).
First Home Super Saver (FHSS) Scheme
If you are a first home buyer, from 1 July 2017 the FHSS scheme allows you to make voluntary contributions to your super to assist in saving for your first home. After 1 July 2018 you can then apply to the Commissioner to have those contributions released to fund the purchase.
The maximum release amount is $30,000 worth of contributions plus deemed earnings, however the contribution amount is capped at $15,000 per annum.
If you are planning to purchase your first home in the 2019 financial year, consider whether it would be beneficial to utilise your $15,000 voluntary contribution cap for the 2018 financial year. This will allow you to take advantage of the full $30,000 contribution by making your second contribution of $15,000 in the 2019 financial year prior to your purchase.
Post 30 June Strategies
In addition to the above, there are some additional super changes which take effect on 1 July 2018. We will assess the suitability of these to your strategy on an ongoing basis.
From 1 July 2018, if you are over the age of 65 and sell your main residence you may be able to contribute up to $300,000 to super ($600,000 per couple).
This contribution does not require you to satisfy a work test and is available even if your super balance is greater than $1.6 million.
You can find further details on downsizer contributions in our article: Downsizing contributions to super.
Carry-forward Concessional Contributions
From 1 July 2018, if you have a member balance of less than $500,000 you will be able to ‘carry forward’ your unused concessional contribution cap on a rolling basis for five years.
The unused amount will start accruing from 1 July 2018, and the first year that you will be able to utilise this amount will be in the 2020 Financial Year.
If you would like any additional information on the above, please get in contact with your Redwood adviser.