This financial year, 30 June falls on a Saturday, so make sure all super contributions and strategies are in place well before then to avoid missing the deadline.
To help you meet your deadline, we’re running a two-part series on the things you need to check off your to-do list by the end of next month. Today we’ll run over the first four. Due to changes to super, it may benefit you to act on some of these issues this financial year.
1. Government co-contributions
The government will match dollar for dollar to a maximum non-concessional contribution of $1,000 for eligible individuals whose total income does not exceed $31,920 per annum. The co-contribution reduces for total income above $31,920 and ceases when total income reaches $61,920.
What are the benefits?
For eligible individuals who are able to make non-concessional contributions to their super fund, the co-contribution is a tax-free booster for retirement savings. It effectively doubles the contribution, meaning that more money is added to their super fund courtesy of the government as a reward for saving for their future. That’s up to a possible 100% immediate return on the contribution – hard to match elsewhere.
Potentially fewer Australians may be eligible for a co-contribution in the 2012/13 financial year as the maximum income threshold will be reduced from $61,290 to $46,920. Also, the maximum rate at which the Government will match the contribution will be reduced to 50% up to a limit of $500. It may be beneficial to get non-concessional contributions in before 30 June 2012 to get a greater reward than in the next financial year.
2. Transitional concessional contributions cap for over 50s reverting to general cap
On 1 July the concessional cap for those aged over 50 will be reduced from $50,000 to $25,000, bringing it into line with the general cap for all individuals. This is scheduled to increase to $55,000 in 2014 for over 50’s with less than $500,000 in super.
What are the benefits?
A short window of opportunity exists to maximise concessional contributions by salary sacrificing or making personal contributions for which a deduction is claimed for the self-employed. Any unused portion of the transitional cap will be forfeited and cannot be carried forward. As over 50’s have a relatively short time span to grow their super, making the most of the higher cap this year may be an important step to boost retirement savings.
Individuals should be aware of all their fund contributions to ensure this opportunity does not create an unnecessary tax bill if the total contributions exceed the cap. Individuals should review their salary sacrifice arrangements or personal deductible contributions going forward to adjust for the reduced caps in the new financial year, and evaluate whether Transition to Retirement (TTR) strategies are still beneficial. Being aware of the reduced caps going forward is imperative to avoid excess contribution penalties which will eliminate the tax concessions on concessional contributions.
3. Directed termination payments (DTPs) benefits ending 30 June
A directed termination payment (DTP) is an employment termination payment (ETP), including golden handshakes, made to an individual due to their employment being terminated, that is contributed directly to a super fund. The choice of transferring a DTP that was part of an agreement in force before 10 May 2006 to a super fund will expire on 30 June.
What are the benefits?
Rolling the DTP into a super fund will incur tax at only 15% on the taxable component up to $1 million without counting towards either concessional or non-concessional caps. This allows more funds to be rolled into super at a concessional tax rate without breaching caps. Any excess will count towards the concessional contribution cap being $25,000 or $50,000 for over 50’s. After 30 June, no part of the payment can be rolled over into super. If the DTP is rolled into a super fund, not only will it be concessionally taxed into super up to the cap, the earnings from investing those contributions are also taxed at 15% instead of the individual’s marginal tax rate (MTR). Additionally, when the fund is in pension phase, including TTR income streams, earnings on assets supporting the pension are tax free. This represents a significant tax saving compared to investments held outside of super.
The DTP which is rolled over into the super fund must be received by 30 June 2012. After this date, no part of the payment can be rolled over into super. It will then be treated as a normal ETP with 15% tax up to $175,000 cap for those over preservation age, and 30% for those under preservation age. Further, from 1 July the part of the ETP that takes a person’s taxable income above $180,000 will be taxed at the individual’s MTR. For eligible individuals who are already considering termination of employment and are due to receive these termination payments, it may be worthwhile to consider it before 30 June to reduce the tax payable and maximise superannuation contributions.
4. Off market transfers
Currently, certain permitted assets can be transferred from a related party to an SMSF off-market without engaging a broker to facilitate the process. Under the proposed amendments from 1 July, these assets must be purchased through the market or exchange. Where an underlying market doesn’t exist, the transfer must be made at a price determined by a qualified independent valuer. Any increased transaction costs due to this measure will only be incurred by SMSFs that choose to enter into related-party transactions. Note: This measure is currently pending.
What are the benefits?
Listed securities will primarily be affected after 30 June. If individuals are looking to transfer listed securities into their SMSF, doing so before 30 June will eliminate additional brokerage costs on SMSF members. Further, there is no risk of market movements when the securities are transferred, which may be the case after 30 June if there is a lapse of time between the individual selling and the SMSF purchasing them on market, especially given current market volatility.
If considering transferring securities into the SMSF before 30 June, it is imperative that all documentation, share registry accounts and any other required information is completed and correct to avoid delays in the process. This may push the transaction to the next financial year, when off market transfers are no longer permitted. Completing forms early and ensuring the accuracy of information will assist in ensuring that the transaction is finalised before 30 June. Be aware that capital gains tax may apply to the transaction regardless how the transfer occurs.
Come back next week to read the remaining four points to check before 30 June.
Important information: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. Anyone should, before acting, consider the appropriateness of the information in regards to their objectives, financial situation and needs.