The end of the financial year is fast approaching and there are many things for SMSF trustees to consider to get their ducks in a row. The areas that superannuation fund members need to pay particular attention to are: their ability to claim a tax deduction; tax offsets; and, government co-contributions. To take advantage of the deductions and offsets in this financial year, you must take action prior to 30 June 2019.
Tax deduction on contributions: If a superannuation fund member is aware that they will be required to pay personal income tax on their salary and/or investment earnings, then they could consider making deductible superannuation contributions to reduce their income tax liability. Since 1 July 2017, the maximum deductible superannuation contribution a member can make is $25,000 per annum. The limit includes any employer superannuation contributions made for the member, as well as any salary sacrificed super contributions made by the member. These contributions will need to be subtracted from the available limit.
Although the annual limit is $25,000, a member may be able to claim more than the annual limit if they have made further deductible contributions in the month of June 2019. For example, if a member has made $25,000 in deductible contributions in March 2019 and then makes a further deductible contribution of $25,000 in June 2019, the member may claim a tax deduction of $50,000 in the 2019 financial year without exceeding their concessional contributions cap of $25,000 for 2018/2019 and $25,000 for 2019/2020. This is because the first $25,000 made in March must be allocated to the member by 28 April 2019 and the second $25,000 must be allocated by 28 July 2019. Tax Determination 2013/22 supports this allocation of contributions in accordance with the requirements of the superannuation law.
Low income tax offset on contribution: If a superannuation fund member’s taxable income does not exceed $37,000, and either they or their employer has made concessional contributions into their superannuation fund, then their fund will receive a refund of the 15% contribution tax up to $500 paid by their fund on concessional contributions. This is provided, 10% of the member’s total income is derived from employment and/or running a business and the member does not hold a temporary residence visa.
Tax offset on spouse contributions: If a member received contributions made by their spouse, their spouse may be entitled to claim a tax offset on making the contribution. This is provided the receiving spouse is under the age of 70 and has not exceeded their non-concessional contributions cap and their total superannuation balance was less than $1.6 million at 30 June 2018. Both spouses (married or de facto) must also be Australian residents for income tax purposes and not be living apart on a permanent basis at the time the contribution is made. The contributing spouse can claim a tax offset of 18% on a maximum of $3,000 non-concessional contributions, made for their spouse, if the receiving spouse’s income is less than $37,000. The tax offset gradually reduces by $1 for each dollar the receiving spouse’s income goes over $37,000. It cuts out altogether once their income reaches $40,000.
Co-contributions: If a member made non-concessional contributions into their fund, the government will match their contributions by 50 cents for every $1 up to $1000. To be eligible the member’s total income must not exceed $52,697. To qualify, 10% of the member’s income must be from employment and/or running a business and the member must not hold a temporary residence visa and must be under the age of 71 at the end of the financial year. The co-contribution is reduced by 0.0333 cents for every dollar above the income threshold of $37,697. The member will only be eligible for the co-contribution if their total superannuation balance was less than $1.6 million at 30 June 2018 and they have not exceeded their non-concessional contribution cap in the current financial year.
Anyone wanting to lower the amount of personal income tax that they need to pay as well as grow their retirement savings should become familiar with these contribution rules.
Monica Rule is an SMSF specialist and author. Her advice is general in nature and you should seek advice that relates to your specific circumstances before making any decisions. www.monicarule.com.au