Superannuation & planning for tax time

As the end of June rapidly approaches, many Australians will be wondering what they should do to optimise their tax position for the year. Superannuation is something that can concern people of all ages – especially the self-employed.

Contributions have certain caps and work-related tests and pension withdrawals may also have limits.

The regulatory environment around superannuation is very strict and several years of law changes have created a variety of requirements and thresholds.

There are several key considerations for superannuation as the end of the financial year approaches.

Contributions

A ‘concessional’ contribution is one that it is taxed at 15% in the super fund and one that the contributor (either the member or their employer) will claim a tax deduction for.

‘Non-concessional’ is a contribution made from after tax money.

Contributions have certain caps and work-related tests and pension withdrawals may also have limits.

Contribution caps to 30 June 2014 are:

* $35,000 concessional if aged 59 or over on 1 July 2013.

* $25,000 concessional for everyone else.

* $150,000 non-concessional.

* $450,000 under bring forward rule that allows three years of non-concessional limit to be made at once for people under 65, subject to prior use of this rule.

There are some important points to consider in relation to superannuation contributions. These include:

* Taxpayers over the age of 65 must meet a works test to make the contribution; they must work more than 40 hours in 30 consecutive days.

* To avoid doubt, the contribution should be received and banked by the fund before to close of business on 30 June.

* The non-concessional cap will be $180,000 from 1 July 2014. This means the bring forward rule from then will be $540,000.

*If bring forward is used before 30 June 2014 then the three-year cap remains $450,000.  It is not adjusted for the increase after 1 July 2014.

* If a deduction is intended to be claimed for the contribution by an individual taxpayer, they must satisfy the 10% rule where no more than 10% of their income can be from employment and the appropriate paperwork completed and sent to their super fund.

* Extra tax is payable for taxpayers whose income and concessional super contributions total more than $300,000.  The extra tax is 15% of the excess over $300,000.

Taxpayers over the age of 65 must meet a works test to make the contribution.

Pensions

Most pensions will be account based and can be a pension for a fully retired person or they can be ‘transition to retirement’ pensions for people working part time.

Some important notes on pensions, particularly for people running a self-managed superannuation fund, include:

* People who are drawing pensions must meet a minimum payment requirement as a percentage of their account balance at the start of the year, which is based on their age at the start of the year.

* If the minimum requirement is not met there are adverse tax consequences both for the member taking the pension and the fund paying the pension.

* People on a transition to retirement pension are limited to a maximum withdrawal of 10% of their account balance at the start of the year.

* People on a transition to retirement pension under the age of 60 will need to include the taxable component of their pension in their taxable income (and they will receive a 15% rebate on it).

The information in this article is for general interest and is not intended as advice. For advice and planning, consult an experienced tax professional.