While the Coronavirus pandemic has captured global attention, it's still important to be mindful of your long-term planning for retirement. Superannuation savings have not been immune to the economic downturn caused by Coronavirus, so it's especially important to review your super prior to the end of the 2019-2020 financial year.
Here are 19 key superannuation strategies and issues to consider in the lead-up to 30 June 2020, and remember, our financial advisers are here to help you if you have questions, or you'd like to explore opportunities within your own end of financial year superannuation planning:
- Your total superannuation balance as at 30 June 2019. This is the total of all your superannuation accounts and may influence whether you can make non-concessional (after-tax) contributions to super, your eligibility to access the ‘three-year bring forward’ contributions opportunity, your eligibility to receive Government co-contributions and a tax offset for any spouse contributions you may make.
- If you're planning to make additional superannuation contributions, remember they need to be made before 30 June (which falls on a Tuesday in 2020). Consider making contributions well in advance at the end of the financial year to ensure they are received by your super fund on time. Contributions made by electronic funds transfer (eg. BPAY) are not deemed to have been made until the money appears in your super fund's bank account. This could be several days after you initiate the transfer.
- Concessional contributions include contributions made by an employer such as the 9.5% superannuation guarantee, salary sacrifice contributions and personal tax-deductible contributions. The maximum concessional contributions that can be made this financial year is $25,000.
- Concessional contribution carry-forward. If your total superannuation balance (ie. the balance of all your superannuation accounts added together) as at 30 June 2019 was less than $500,000 and you did not use all your $25,000 concessional contribution cap in 2019-2020, you may be able to carry the unused portion of last year’s cap forward and contribute this in the current financial year.
- The rules around making personal tax-deductible contributions have been relaxed significantly. Most people, not just the self-employed, are able to claim a tax deduction for their personal contributions. However, limits apply and steps need to be taken to ensure a tax deduction is valid.
- Non-concessional contributions are contributions made from after-tax income and from other savings. The maximum amount that can be contributed this year is $100,000 (or up to $300,000 using the three-year bring forward rule). However, if your total superannuation balance at 30 June 2019 was more than $1.6 million, you cannot make any non-concessional contributions. If it was between $1.4 million and $1.6 million, the maximum that can be contributed under the three-year rule has also been scaled back.
It's also worth remembering that if you made non-concessional contributions of more than $100,000 in either 2017-2018 and/or 2018-2019, the amount you may be able to contribute this financial year will be limited.
- Do you hold insurance through your super? If so, recent changes to legislation may result your insurance cover being cancelled under certain circumstances and you don’t take the required action. In general terms, if your super account is inactive (ie. a contribution or rollover is not made within the past 16 months) or if your account balance falls below $6,000, your insurance will be cancelled. However, you may retain your insurance by either making a contribution to your super fund, or by making an election to retain your insurance.
- If you're planning to buy your first home, voluntary contributions made to super since 01 July 2017 may be withdrawn for the purpose of buying your first home under the First Home Super Saver Scheme.
- If your total income is less than $53,563 and you derive at least 10% of your income from employment or self-employment, and you make a personal non-concessional contribution to super, you may be eligible to receive a Government co-contribution of up to $500.
- People who make a contribution to super for their spouse may be eligible to receive a spouse contribution tax offset of up 18% of the amount contributed, subject to a maximum offset of $540. A spouse contribution tax offset is available where an eligible spouse for whom a contribution is made has income of less than $40,000.
- With the introduction of limits people can now have in a superannuation pension account, the ability to split contributions between spouses (and therefore move towards equalising super) is more important than ever.
There is still time to split up to 85% of concessional contributions made in the 2018-2019 financial year. Concessional contributions made in 2018-2019 can be transferred to a spouse's account after 30 June 2020.
- On 01 July 2017 we saw the introduction of the ‘transfer balance cap'. In simple terms, this restricts the maximum amount that can be transferred to a super pension or income stream (these terms are interchangeable). The transfer balance cap is currently $1.6 million.
- There are occasions when concessional or non-concessional contributions to super exceed the permissible limits (or caps). If this happens, the Australian Tax Office will issue an Excess Contribution Determination. If you receive a determination it is essential you contact us immediately, even if you think an error has been made. There are strict time-frames that must be adhered to in order to minimise penalties.
- Are you running a small business and have sold the business or any of the businesses assets? If so, you may be eligible to take advantage of the Small Business Capital Gains Tax Concessions. Not only do these concessions save you tax, but may enable you to make additional contributions to superannuation without being constrained by the concessional and non-concessional contribution caps.
- As at 30 June 2019, the Australian Tax Office was holding almost $21 billion in lost and unclaimed superannuation on behalf of Australians. We can help you search for any lost superannuation you may be entitled to.
- One of the attractions of superannuation is the ability to draw a very tax-effective income once you retire. However, to receive favourable tax treatment, a minimum amount of income must be drawn each year. Check to ensure you have drawn the prescribed minimum level of income before 30 June, noting that the Federal Government has halved the minimum pension draw-down amounts for 2019-2020 and 2020-2021.
- Superannuation pensions are not solely reserved for those who have retired, but people who are approaching retirement age may also draw a pension from their super under ‘transition to retirement’ rules.
It is important that once a person receiving a transition to retirement pension meets a superannuation ‘condition of release’ – such as retiring, even if before the age of 65 – they inform their super fund or adviser immediately. Doing so may reinstate some of the taxation advantages that were lost from 01 July 2017.
- The money a person has in superannuation does not automatically form part of their estate when they pass away. There are a number of options available for a person to nominate a beneficiary to receive their super in the event of death, however, the rules are complex. We encourage all clients to make appropriate death benefit nominations. If a nomination was made in the past, it is important to review it from time to time – to ensure it remain up-to-date.
- Early access to superannuation. If you are unemployed, or you have experienced a reduction in working hours, or a reduction in turnover (if you are a sole trader) of 20% or more as a result of the Coronavirus pandemic, you may be able to access up to $10,000 tax-free from your superannuation account. You will need to apply for early release before 30 June 2020. If you require assistance in determining your eligibility, please contact us.
The topics in this article are a snapshot of some of the issues to consider for your superannuation planning as we approach the end of the 2020 financial year.
If you have any questions, or if you would like us to review your circumstances to check that everything is on track, feel free to contact Pat Kelly or Jenny Kitching at The Peak Partnership to take the next steps.