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Quick checklist for end of financial year

As the end of 2019 financial year is upon us, it’s time to maximise contributions, satisfy minimum pension drawings and optimise your tax and superannuation outcome prior to 30 June.

As a quick checklist, here are some items to consider:

  • Top up your super contributions
  • Bring forward super contributions
  • Make a spouse contribution
  • Obtain a government co-contribution
  • Lodge your deduction notice
  • Review salary sacrifice arrangements
  • Pre-pay expenses and crystallise losses
  • Defer income and gains until July
  • Gather your receipts
  • Meet minimum pension standards

Maximising super contributions

If you’re under 65 or otherwise eligible to contribute to super, you should think about maximising your contributions. However, there are limits on how much you can contribute.

Generally, up to $25,000 pa can be contributed from ‘before tax’ money (e.g. employer and salary sacrifice contributions) and provided you’ve got enough assessable income to offset, the ‘concessional cap’ includes personal contributions that you’ve claimed a tax deduction for.

Any amount of personal contribution that you don’t or can’t claim as a tax deduction is counted against the $100,000 pa ‘non-concessional cap’. If you’re under 65 and have less than $1,600,000 in super, you might be able to bring-forward two future financial years’ worth of the non-concessional cap to make a larger contribution of up to $300,000.

If you earn at least 10% of your income from employment, the Government may give you up to $500 as a government co-contribution if you make a non-concessional contribution. You need to be less than 71-years-old, earn less than $37,697 and make a $1,000 contribution to receive the full $500.

Low income earners also get a break on the 15% tax applied to concessional contributions. The Government will apply a low income super tax offset of up to $500 to your super account if you earn less than $37,000, so it might be worthwhile contributing extra and claiming a tax deduction.

If your spouse isn’t earning much, you might want to give their super a boost. If your spouse earns below $37,000, you can claim a spouse contributions tax offset of up to $540 when you contribute $3,000 to their super. They must be under age 65, but if they’re 57 or older they can’t be retired.

If you’ve made personal contributions that you intend claiming a tax deduction for, don’t forget to lodge your Notice of Intent to Claim a Deduction form with your super fund. You must receive an acknowledgement letter back from your super fund before you lodge your tax return, or before the end of the financial year following the year in which you made the contribution (whichever comes first). Without the acknowledgement letter, you can’t claim the deduction.

How to fund contributions? Perhaps you have spare cash, or think about selling or in-specie transferring assets held in your own name (subject to capital gains tax considerations, see below.)

Bring forward expenses and defer income

If you think you might earn less next year, or simply to have a bigger refund, you could bring forward tax deductible expenses and deferring assessable income.

Generally, you can pre-pay up to 12 months of expenses such as interest on an investment loan. This applies to deductible work-related expenses like insurance premiums for income protection policies too. If you’re planning on buying a new work-related tool (e.g. adding to your professional library or tools of trade), it’s immediately deductible if it costs less than $300.

If you’ve realised a capital gain during the year, you might want to consider bringing forward the disposal of an asset carrying a capital loss to offset capital gains. Just be careful not to get caught out in a ‘wash sale’ (where you sell shares to crystallise a loss and then buy them back shortly thereafter) as the ATO considers that a tax avoidance scheme and will cancel the benefit. The exception is if you in-specie transfer the shares into your SMSF, as the primary motivation is providing for your retirement.

Deferring income can be problematic, but worth considering if you are certain that you’ll earn less next financial year. A standout strategy is where you are retiring, and you ask your employer to defer your retirement until an agreed date in July. Your Employment Termination Payment will be subject to tax at the lower marginal rates (provided you won’t have any other sources of income next financial year) and if you’re 65, you have the opportunity to meet the 40 hours in 30 days ‘work test’ that ensures you’re eligible to contribute to super for the rest of that financial year.

While it’s generally too late to enter into a salary sacrifice arrangement for employment income earned in the current financial year, you should review your future arrangements for the coming 2019/2020 financial year.

Make sure that any salary sacrifice arrangements for extra concessional contributions to super are not breaching the contribution caps, resulting in paying extra tax. You should also review those arrangements when you have a change in salary.

Lastly, get your administration in order!

SMSF trustees, please ensure that you meet your minimum pension payment requirements, and place your paper work in good order.

 

Michelle Bromley is Director and Private Client Adviser at Prime Financial. This article is general information and does not consider the circumstances of any individual.

7 Comments
Wendy
June 08, 2019

Michelle is correct. I am 69 yrs old and been earning a decent income from Airbnb for 3 years. I am not on the pension. I am unable to make any superannuation contributions as Airbnb is regarded as passive income and does not satisfy the work test (although nothing passive about scrubbing apartments, making beds, scheduling etc). My accountant raised this at an ATO conference to confirm this was correct.

Renee
June 06, 2019

Hello Michelle, there are so many aspects to making super payments that it gets quite confusing.

My workplace does not allow salary sacrificing, so I intend making a concessional contribution this year of $18,000. This will keep me under the $25,000 limit.

I also want to get the government co-contribution, as my taxable income is below $40,000. How do I make sure that my non-concessional contribution of $1,000 is recognised by the ATO? Is there a separate form that I need to fill in? If not, is there anything else I need to do for the ATO to recognise this for co-contribution purposes?

The same thing applies if my husband was to make a spouse contribution. There seems to be no way to clearly identify what each one is.

Thanks

Michelle Bromley
June 07, 2019

Hi Renee. A spouse contribution does not qualify for the Government Co-contribution. Your super fund will usually have different payment instructions for a personal contribution versus a spouse contribution. The ATO works out if you're eligible for a Government co-contribution after you lodge your tax return. Here is a link to the ATO's website with that factual information. https://www.ato.gov.au/Individuals/Super/In-detail/Growing-your-super/Super-co-contribution/

Renee
June 08, 2019

Thank you, Michelle

Lyn
June 06, 2019

To other aged, superannuative "Virgins" out there

Apropos my question above, VIP., if you are LESS than 71 before end of this financial year go to ATO site re Entitlement to Govt Co-contribution, I since found.

If you are ELIGIBLE to make non-deductible super contribution ( that's not claiming tax deduction for it) & ELIGIBLE is definitely the word, & if taxable income less than 37,697 as per Yr 2018 quoted figure, it seems a Govt co-contribution of up to $500 will be paid to your super fund to match contribution if you are eligble.

Details are convoluted but stick with it to find a way. Had no idea available to some who are retired.

Wished to share what I found in research in case others didn't know & before end of financial year.

Lyn
June 06, 2019

Hello Michelle,
A question re in specie transfers to a Super fund from my thoughts after reading your article. If you don't know answer perhaps someone you know does.

As you probably know, after age 65 a work test of 40hrs work in no more than 30 days has to be satisfied for further contributions to super fund to be allowed. Your article made me think re what I read recently about Centrelink allowing from 1/7/19 as work for self-employed retirees as gardener, uber driver, airbnb/whatever will be allowed to be considered as part of its' Work Bonus scheme. From that, I wondered as they consider all of those to be 'work ' for their scheme then would it therefore be allowed to contribute to Super fund after 65 even if it's not continuously 40hrs in 1 set of 30 days since C'link allows it over the whole year and not a particular period?
From those thoughts I googled to find what I could & found there is an amnesty on the work test for 2019/2020 but only if the contribution is made within 12 mths of the last work test satisfied so it's not a 'one size fits all' amnesty so that does not apply to me.

If above stated self-employed occupations are considered work by Centrelink for its' Work Bonus ' scheme over whole year (they carry forward unused $ from week to week apparently), then would it not follow that if that is the basis for C/link re what is work for retirees ( and much of above is seasonal) that the same principle could be applied to contributions to super for those over 65 but don't do 40hrs in not more than 30 days?
When I think about it, I have worked more than 40hrs in not more than 30 days over a seasonal period but as it's an aside to replace a small amount of reduced part-pension when asset rules changed 2017 I have never really thought I was 'employed' but now see that I was!

Can the contribution be made before end of financial year or does it have to be immediately after the 40hrs worked? Seems a daft question but without doing a lot of research am sure I won't be only one asking as rules are so different for retirees. If fulltime worker I would know answer.
Thanks in advance for thoughtful reply.

Michelle Bromley
June 06, 2019

Thanks for your question Lyn. The following is factual information only and you may need to obtain personal financial and taxation advice to better understand how to apply the rules to your personal situation.

The legislation and regulations that govern Super are different those that govern Centrelink, so Centrelink definitions don’t apply.

Currently, under the Super rules if you are aged 65 or older you have to meet the ‘work test’ which is 40 hours of gainful employment in a consecutive 30 day period before you can make a personal contribution.

It’s important to understand what ‘gainful employment’ means. It means that you get paid for the work, whether you are an employee or self-employed.

If you have seasonal work as an employee, you could be delivering pamphlets or picking fruit for example, then provided you work at least 40 hours in a consecutive 30 day period then you can make personal contributions for the rest of the financial year.

If you are self-employed, it’s important to get personal advice from a registered tax agent to understand whether your situation actually qualifies as gainful employment. For example, simply renting out a property on Air BnB is generally not considered to be operating a business and doesn’t meet the work test definition.

You will need to contact your super fund to find out how the personal contribution can be made, and to make the declaration that you’ve met the work test. If you want to claim a tax deduction for part of the contribution, you need to have taxable income to offset with a deduction and you need to lodge the notice of intent to claim a tax deduction too.

For next financial year and beyond, you are correct that last year’s Budget introduced a 12 month exemption so that if you are age 65 or 66 and you met the work test in 2018/19, then during 2019/20 you will be able to contribute up to $100,000 provided your total super balance at 30 June 2019 is below $300,000.

In this year’s Budget the Government proposed to extend that exemption to align better with Age Pension age, so that from 1 July 2020 those aged 65 or 66 could make personal super contributions without meeting the work test and allowing them to make larger personal contributions of up to $300,000. However, these proposals haven’t been passed through Parliament yet.

 

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