Super contributions can be an effective way to minimise tax! With 30 June 2020 approaching, we thought we'd provide a checklist with some relevant information on super so you can maximise your contributions and minimise tax.
Contributions – Concessional
The concessional contribution cap for individuals for the 2020 year is $25,000 per person. Concessional contributions include:
1. amounts paid by employers as the 9.5% SGC amount,
2. salary sacrificed amounts also paid by employers, and
3. can include amounts contributed personally by the member in certain circumstances.
Individuals under 65 years of age can make personal contributions to top-up the contributions made by their employer as either the 9.5% SGC or under a salary sacrifice arrangement. The aggregate of all contributions to all super funds that you are a member of, should not exceed the annual concessional cap of $25,000.
For members who are over 65, they are only allowed to top-up their contributions from their personal funds if they pass a ‘Work test’ which says that the person has worked 40 hours work in a continuous 30-day period during the year. If you fail the ‘Work Test’ but still have some SGC contributions made for you, then the SGC contributions are allowed to stand.
Carry Forward contributions - Concessional
Carry-forward contributions are not a new type of contribution, they are simply new rules that allow super fund members with balances less than $500,000 to carry forward any of their unused concessional contributions cap to the next year, for up to five years.
This means that if your 2019 contributions fell short of the $25,000 cap, then your 2020 cap is increased by the shortfall. For example, if you only contributed $20,000 in 2019, your shortfall would have been $5,000 which, when added to your 2020 cap of $25,000, increases the 2020 cap to $30,000.
Whether to contribute or not
The choice whether or not to make a personal contribution on top of whatever your employer puts aside is influenced by whether your personal tax situation would see you benefiting from a tax deduction for the personal superannuation contribution.
These contributions get taxed at 15% in the super fund, so the member would need to be paying tax at a rate higher than 15% if a benefit is to be received. Any taxpayer with taxable income above $18,200 would be paying tax at a higher rate.
So, if an individual’s cash flow allows such a payment, and if contributing to super is one of your financial-planning goals, then topping up your employer contributions to the revised cap is well worthwhile.
If people don’t want to contribute the entire amount of their revised cap, the shortfall will carry over to future years.
Contributions – Non-Concessional
Another way of making contributions is to make a ‘non-concessional’ contribution. You will not receive a tax deduction for these non-concessional contributions; the process just shifts funds from an environment where you would be paying tax on the earnings at your top marginal tax rate (varies from 21% to 47%), to an environment where the maximum tax payable is 15% and once you are in pension mode that rate reduces to 0%.
Most fund members can make non-concessional contributions of up to $100,000 per annum however, for those under 65, they can take advantage of the 3 year ‘bring forward rule’ which allows you to contribute up to $300,000 in year 1 but bars you from contributing again in years 2 and 3. This may be helpful if you need to inject money into your SMSF, for example to finance a deposit on a property that the fund wants to acquire.
A Final Reminder
It is essential that all payments for contributions must appear as deposits on the bank statements of the Super Fund prior to 30 June 2020.
Please consider whether you want to make any additional contributions to your fund prior to 30 June 2020 and please contact us should you have any queries 03 95857555.