What’s happening with your super? As the end of the financial year approaches, RSM Bird Cameron has some advice on dealing with superannuation issues.
With 30 June falling on a Sunday this financial year it will be necessary to ensure that contributions are with the superannuation fund before that date. This is especially important where the contributions are made by electronic transfer as they need to be in the fund bank account before 30 June.
If the bank does not make the transfer until the Monday it could be too late, with the potential for excess contributions tax of 46.5 percent to add to that contribution.
SALARY SACRIFICING
Salary sacrificing can significantly enhance superannuation savings for retirement. By creating an agreement between an employee and their employer, an individual can sacrifice a part of their salary directly into their super account.
Because contributions are deducted from before-tax salary, the taxable income is reduced while the retirement savings receive a boost. In some situations this may mean the individual will be taxed at a reduced marginal rate due to the decrease in taxable income.
GOVERNMENT CO-CONTRIBUTION
The government will make a co-contribution of up to $500 to superannuation funds for each personal after-tax contribution made by a tax payer. However, to receive government co-contributions the individual must be under 71, earn an annual income of less than $61,920 and receive at least 10 percent of income from employment – either as a self-employed or as an employee.
SUPER CONTRIBUTIONS AND THE SELF-EMPLOYED
Self-employed individuals may be eligible to claim a full tax deduction on their superannuation contributions, however they will be regarded as non-concessional contributions if they do not claim super contributions as a tax deduction.
To qualify as a ‘substantially’ self-employed person, income from an employer who is required to make superannuation contributions must not exceed 10 percent of total earnings.
SPOUSE CONTRIBUTIONS
Generally a tax deduction for super relates to the person making the contributions on their own behalf. There is an exception when it comes to spouses. An individual can make a concessional contribution to a super fund and split those contributions with a spouse. If they make contributions for their spouse, they may also be eligible to claim a tax offset, depending on the spouse’s income. Although once the spouse turns 70, they can no longer make contributions on their behalf.
Spouse contributions can be made on behalf of a spouse if they are 65 or younger, or if they are between 65-70 and have worked at least 40 hours over 30 consecutive days in the financial year in which the contribution is made.
PENSION PAYMENTS
A key requirement of a pension existing in a superannuation fund, and the tax exemption for the income and capital gains of the fund to be tax free, is that the minimum pension is paid prior to 30 June. Without the minimum pension paid, the fund may not be eligible for the income tax exemption on the income generated.
The ATO has released a document outlining that if the minimum pension is underpaid by less than one twelfth and is then paid as soon as possible it will deem that a pension still exists and the income tax exemption will still be available.
Even with the ability for the pension exemption to continue where a pension is underpaid the best course of action is to ensure that the minimum pension is paid before 30 June.