With 30 June 2021 approaching, we want to make sure that you are aware of your contribution option before year end.
Here are few checklist items that might be relevant.
CONTRIBUTIONS – CONCESSIONAL
The “Concessional” contribution cap for individuals for the 2021 year is $25,000 per person. Concessional contributions include:
amounts paid by employers as the 9.5% SGC amount,
salary sacrificed amounts also paid by employers, and
can include amounts contributed personally by the member.
Employers are required to contribute 9.5% of your Ordinary Times Earnings for the year into a complying super fund for your benefit. There is no age limit on these employer contributions.
Taxpayers can also make Personal Contributions to top up any employer contributions. These personal contributions are tax deductions in the taxpayer’s personal tax return.
For those under 67 years of age (used to be 65), their annual concessional contribution cap is $25,000 ($27,500 next year) for all contributions including, SGC, salary sacrifice and personal contributions.
For people over 67, they are only allowed to contribute up to $25,000 (inclusive of the SGC amount) for the year ended 30 June 2021 provided that they pass a “Work Test” which requires the person to have worked 40 hours in a continuous 30-day period during the year. If the person fails the ‘Work Test’ but still have some SGC contributions made for them, then the SGC contributions are allowed to stand.
For people over 75 years of age, the fund can only accept their employer’s contributions (SGC and salary sacrifice).
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 annual concessional contributions cap on a rolling basis for five years.
The $25,000 annual cap is increased by any shortfalls in contributions carried forward from 2019 as follows:
Tax Year Revised Concessional Contribution Cap
2019 Shortfall in contributions below $25,000 per annum in the 2019 year.
2020 Shortfall in contributions below $25,000 per annum in the 2019 & 2020 years
2021 Shortfall in contributions below $25,000 per annum in the 2019, 2020 & 2021 years
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 benefitting 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.
If an individual’s cashflow 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, to an environment where the maximum tax payable is 15% and once you are in pension mode that rate reduces to 0%.
$100,000 contribution per member
The annual non-concessional cap is $100,000.
All taxpayers under 67 can use this option.
Taxpayers over 67 have to pass the Work Test.
Taxpayers over 75 can’t make any more non-concessional contributions.
If you have a total superannuation balance of $1.6 million or more on 30 June 2017 you are not eligible to make non-concessional contributions regardless of everything else.
$300,000 contribution per member
Taxpayers who are under 67 years of age on 1st July 2020 you can take advantage of the 3-year ‘Bring Forward Rule’ where the current year’s $100,000 limit is increased by the next two years’ limits to allow you to make contributions of up to $300,000 in this year without breaching your cap. Taxpayers using a SMSF to acquire property find this option very beneficial in getting enough into their super fund to fund the purchase deposit.
Taxpayers over 67 can’t use the Bring Forward Rule.
Co-Contribution – Free money
Non-concessional contributions of up to $1,000 are currently matched by the Government with a co-contribution of $500 for people under the age of 71 who have income of less than $39,837 (of which at least 10% must have been from eligible employment). The co-contribution will be phased out up to an income level of $54,837.
All contributions must appear in the super fund’s bank statement on or before 30 June 2021.
At May Klye & Associates, we specialise in dealing with the accounting and tax aspects associated with Superannuation and especially Self Managed Superannuation Funds. We have dozens of SMSF clients, and we have extensive experience in getting them the best tax outcome.
If you would like to know more about your options, call Noel or Amanda on 03 9585 7555 or email us at email@example.com