Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 254

The top seven EOFY superannuation tips

It has never been more important for your superannuation for you to get ahead of the game and understand the rules before the end of financial year rush.

A raft of new thresholds for superannuation kicked in on 1 July 2017, and not updating your super settings could be … catastrophic might be a little dramatic, but it wouldn’t be far off.

Proper preparation is essential. The good news is you still have time to fine tune things. No-one likes the end of financial year (EOFY) panic, so here are some of the more important ways to get the most from your super.

1. Adjust salary sacrifice arrangements

This should have been done before now. But if you haven’t made adjustments to the reduction in the concessional contribution (CC) limits from FY17 to $25,000 from $30,000 for the under-50s and $35,000 for the over-50s, then it might not be too late.

Find out how much in CCs you have put into super to date, then make immediate adjustments.

Where would the problem lie? If you are earning $110,000 a year and are receiving $10,450 in SG contributions, you might have had a salary sacrifice set at $1,625 a month (under 50s, $30,000) or $2,045 a month (over 50s, $35,000). If you haven’t made adjustments, you’re on course to break your CC limit by $5,000 or $10,000. But you might be able to cancel your last few salary sacrifice contributions to keep you under your limit or reduce how much you blow your cap by.

2. Use the new rules for extra CCs

If you haven’t salary sacrificed to this point, it’s not too late. From 1 July 2017, the ‘10% rule’ regarding employees was removed, allowing almost everyone to make contributions and get tax deductions (similarly to salary sacrifice arrangements) by putting money directly into your super fund in the lead up to 30 June, as a lump sum, or in parcels.

This is an important new way of equalising how people can get money into super, but don’t leave it right until the last minute. Contributions to super funds count for the year that they are received. If you send it on 28 or 29 June (30 June is a Saturday this year), particularly by BPay, there’s a chance it will not be received by the super fund until 3 July where it will count towards your FY19 contributions.

3. Make decisions on capital gains tax relief

If you had more than $1.6 million in pension or transition-to-retirement pension on 30 June 2017, then you were able to potentially take advantage of the CGT relief provisions to soften the blow of the new transfer benefit cap (TBC) of $1.6 million.

Those decisions need to be made soon, if they have not been made yet. It’s not a blanket decision to say ‘yes’ for your whole portfolio. It can be made asset by asset. There will be assets in most portfolios where you want to apply for the CGT relief, while other assets where you’re sitting on losses can be used for a future CGT loss to offset other gains.

It is a complex decision-making process, which might require evaluating each parcel of a particular share that you bought over an extended period. Don’t leave this complex work until too close to the deadline. Sit down with your adviser or accountant to work through this process soon.

And understand that you need to make these elections, which are irrevocable, before you put in your SMSF’s returns for FY17.

4. Make minimum pension payments before 30 June

An annual piece of advice: make sure that you make your minimum pension payment before 30 June. If you don’t, the ATO deems your super fund to have NOT been in pension mode for the whole financial year, meaning you’ll pay tax on income and gains for that period. And any payments will be considered super lump sums for both income tax and SIS Regulation purposes.

This would also mean starting a new pension the following financial year, which could have even broader implications, potentially also for pensions with benefits tied to social security.

5. Protect capital gains with CCs

Making concessional super contributions to help reduce capital gains tax is nothing new, except it is easier as a result of point 2 above. If you have made a capital gain, you can reduce your CGT (or more precisely, how much tax you have to pay for the entire year) by making CCs.

For example, if you have made a capital gain of $50,000 (reduced to $25,000 for assets held longer than a year) then a concessional contribution will generally reduce your taxable income and might allow you to pay less tax on your capital gain, particularly if it impacts on your marginal tax rate.

In any case, a $10,000 CC will save you tax of up $4,700, while you’ll pay a maximum of 23.5% on the capital gain itself.

6. Make the most of non-concessional contributions (NCC) rules

The annual limit for NCCs was dropped from $180,000 a year to $100,000 a year as of 1 July 2017. The other usual rules apply. You can make them up to age 65 with few restrictions, and you can use the pull forward rule to put in up to $300,000 in one year. But this will limit how much you can put in for the subsequent two years.

Come this time of year, it’s important to know the rules even more clearly. If you have enough money, you and your partner could get up to $800,000 into super (combined) in the next three months.

The pull-forward rule is only triggered if you put in more than $100,000 in a financial year. If you put in more than $100,000 (say $110,000) in the current financial year, then you are limited to putting in another $190,000 over the following two financial years.

But if you put in no more than $100,000 this financial year, then you can contribute, on 1 July 2018, $300,000, which would trigger the pull forward rules and maximise your contributions for the FY19, FY20 and FY21 years.

There are extra restrictions this year on making NCCs. If you already have more than $1.5 million in combined super, then you are limited to making $100,000 in NCCs. If you have between $1.4 million and $1.5 million, you are limited to putting in one year’s worth of NCCs, plus one year of pull forward. Only if you have less than $1.4 million in super can you use the maximum pull forward rules to put in $300,000 in one year.

7. Spouse super splitting

The imposition of the $1.6 million TBC has bought back the ‘spouse super split’ as a critical part of many couples’ financial planning. It didn’t matter previously if one member of a couple had a $10 million super balance and the other had diddly squat. Nothing was taxed, in anyone’s hands. But with the $1.6 million TBC, if you have more than $3.2 million in super and it’s unevenly split, you are literally donating extra to the ATO.

One way to even up super balances is ‘spouse super splitting’, or transferring your concessional contributions for one spouse to another (less the 15% contributions tax) after the end of a financial year.

How does that work? Let’s say one spouse has a large super balance and received the full $25,000 in CCs for the year. The partner has a small super balance and received nothing in CCs for the year. The partner with the higher contributions could use the spouse splitting rules to roll over $21,250 ($25,000 less 15% contributions tax) to the partner’s account. If this is done every year, it can go a long way to evening up super balances.

You only have until the end of the following financial year to do the spouse split. That is, for FY17, you will need to give super funds the instruction to do the spouse split rollover before 30 June 2018.

There are many more super hints available, but for this year, the above are the major new opportunities or numbers and limits you need to check.

 

Bruce Brammall is Managing Director of Bruce Brammall Financial Pty Ltd and Bruce Brammall Lending Pty Ltd. Bruce’s sixth book, Mortgages Made Easy, is available now. The information contained in this article is general and does not consider anyone’s specific circumstances. If you are considering strategies mentioned here, consult your adviser.


 

Leave a Comment:


RELATED ARTICLES

A super new opportunity for EOFY 2018

2024/25 super thresholds – key changes and implications

Super changes, the Budget and 2021 versus 2022

banner

Most viewed in recent weeks

The nuts and bolts of family trusts

There are well over 800,000 family trusts in Australia, controlling more than $3 trillion of assets. Here's a guide on whether a family trust may have a place in your individual investment strategy.

Welcome to Firstlinks Edition 581 with weekend update

A recent industry event made me realise that a 30 year old investing trend could still have serious legs. Could it eventually pose a threat to two of Australia's biggest companies?

  • 10 October 2024

Welcome to Firstlinks Edition 583 with weekend update

Investing guru Howard Marks says he had two epiphanies while visiting Australia recently: the two major asset classes aren’t what you think they are, and one key decision matters above all else when building portfolios.

  • 24 October 2024

Preserving wealth through generations is hard

How have so many wealthy families through history managed to squander their fortunes? This looks at the lessons from these families and offers several solutions to making and keeping money over the long-term.

A big win for bank customers against scammers

A recent ruling from The Australian Financial Complaints Authority may herald a new era for financial scams. For the first time, a bank is being forced to reimburse a customer for the amount they were scammed.

The quirks of retirement planning with an age gap

A big age gap can make it harder to find a solution that works for both partners – financially and otherwise. Having a frank conversation about the future, and having it as early as possible, is essential.

Latest Updates

Planning

What will be your legacy?

As we get older, many of us start to think about how we’ll be remembered by those left behind. This looks at why that may not be the best strategy to ensure that you live life well and leave loved ones in good stead.

Economy

It's the cost of government, stupid

Australia's bloated government sector is every bit as responsible for our economic worries as the cost of living crisis. Grand schemes like the 'Future Made in Australia' only look set to make it worse.

SMSF strategies

A guide to valuing SMSF assets correctly

SMSF trustees are required to value all fund assets, including property, at market value when preparing the fund's financial statements each year. Here are some key tips to ensure that you get it right.

Economics

Australia is lucky the British were the first 'intruders'

British colonisation's Common Law system contributed to economic prosperity, in contrast to Latin America's lower wealth under Civil Law. It influenced capitalism's success in former British colonies, like Australia.

Economics

A significant shift in the jobs market

The expansion of the 'care sector' represents the most profound structural change to Australia's job market since the mining boom. This analyses how it's come about and the impact it will have on the economy.

Shares

Searching for value in tech stocks

Just because a stock is cheap doesn't necessarily make it good value. This uses case studies in the tech sector to help identify when stocks trading on 30x earnings may be inexpensive and when others on 10x may be value traps.

Investing

Are more informed investors prone to making poorer decisions?

Finance Professor Michael Finke recently discussed the double-edged sword of taking an interest in your investments, three predictors of panic selling, and why nurses tend to be better investors than doctors.

Sponsors

Alliances

© 2024 Morningstar, Inc. All rights reserved.

Disclaimer
The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third-party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use. To the extent any content is general advice, it has been prepared for clients of Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), without reference to your financial objectives, situation or needs. For more information refer to our Financial Services Guide. You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.