As June 30 approaches, it’s essential to review your superannuation contributions to ensure you’re making the most of the available caps and benefits. Here are some key considerations to ensure that your super is working for you.
Contribution caps and strategies
Contribution caps are generally “use it or lose it.” If you’re aiming to build your super balance, now is the time to maximize your contributions. The rules can be complex, so it’s wise to seek advice from your financial advisor and accountant.
The concessional contribution cap is $30,000. These contributions are tax-deductible, whether made by your employer or personally. It’s crucial to stay under this cap to avoid excess contribution implications. If your employer contributions are under $30,000, or you have no employer contributions, and you’re under 67 (or between 67 and 74 and meeting a work test), you can make additional tax-deductible personal concessional contributions to make up the difference.
Timing is also critical. Ensure your fund receives your contributions by June 30, and know exactly what your employer is contributing up to that date. It is easy to be tripped up by getting the timing wrong.
The super fund pays 15% tax on concessional contributions. If your adjusted taxable income exceeds $250,000, an additional 15% Division 293 tax applies. Consider the overall tax implications to ensure it’s worthwhile.
Non-concessional contributions, which are not tax-deductible, can only be made if your total super balance is less than $1.9 million. The cap is $120,000 per annum, or $360,000 over three years if eligible. Due to the complexity and potential implications of exceeding the caps or getting the timing wrong, seeking advice is recommended.
Lesser-known contribution strategies
If you have a self-managed super fund (SMSF), you can contribute by transferring assets like listed shares, widely held trust units, or business real property instead of cash. This can be useful if you want your SMSF to hold these assets.
You can carry forward unused concessional contribution caps for up to five years if your total super balance was under $500,000 at June 30, 2024. This is beneficial if you haven’t maximised contributions in previous years and want to make a larger contribution now. It can also be useful if you have a lot of taxable income this financial year and can make use of a larger tax deduction.
The downsizer contribution allows you to make a non-concessional contribution of up to $300,000 ($600,000 for a couple) if you’re 55 or older and sell a home you’ve owned for at least 10 years, even if you’re not otherwise eligible to make non-concessional contributions.
Lower income earners can take advantage of government incentives like the low-income super tax offset and spouse tax offset.
Considerations for SMSF Before EOFY
If you’re paying yourself a pension, ensure you’ve drawn the minimum required pension for the financial year based on your pension account balance at June 20, 2024. Failure to do so results in the fund losing its tax exemption.
SMSF assets need to be valued each year at June 30. Listed assets are straightforward, but unlisted investments and property can be complex. Consult your accountant for accurate valuations.
Ensure rent for investments leased to related parties is charged at arm’s length rates and is appropriately documented. Provide evidence like lease agreements and market appraisals to the auditor.
Consider capital gains tax if you’ve sold investments during the year. Offset gains with capital losses and plan the timing of asset sales carefully.
Starting a new pension
If you are eligible to start a pension , it’s practical to start on July 1 in an SMSF due to valuation and reporting requirements. Begin preparations now to be ready.
Starting a pension from your super account reduces fund tax and, if you’re over 60, you won’t pay personal tax on the pension. Ensure your SMSF has enough liquidity to pay the pension each year.
The transfer balance cap increases from $1.9 million to $2 million on July 1, allowing some to add to their pension account.
Long-term planning
It’s important to integrate your super into your overall estate plan. Consider who will receive your benefit, whether they can keep it in the super system, and the tax implications.
As SMSF members age, cashflow and liquidity become crucial, especially for minimum pensions and death benefit payments.
By considering these strategies and seeking professional advice, you can make the most of your super contributions to secure your financial future.
Prefer to listen?
Sydney Partner Louise Meijer reveals superannuation strategies to maximise contributions before June 30 on the Pitcher Perspective podcast.
