Welcome to our winter Wealth Management update.
With 30 June almost upon us, a reminder of key superannuation thresholds and contribution strategies follows:
Concessional Contribution Caps
Concessional contributions are taxed within a super fund at 15%. The Concessional Contribution caps are as follows:
Concessional contributions include contributions for which the individual or an employer is allowed a tax deduction. This includes the 9.25% compulsory SG payments, salary sacrifice contributions and personal contributions for which an individual is entitled to claim a tax deduction (usually where less than 10% of an individual's assessable income plus reportable fringe benefits for the income year came from being an employee).
Contributions Tax for higher income earners
From 1 July 2012, individuals who earn $300,000 or more per annum pay an additional 15% tax on concessional contributions. This increases the tax on their concessional contributions to 30%.
Non-Concessional Contribution Caps
Non-concessional contributions include personal contributions for which you are not eligible to claim an income tax deduction. The non-concessional contribution caps are as follows:
** Individuals under 65 years of age may be able to bring forward a further 2 years' worth of contributions (a total of $450,000 in FY13/14). An individual who made a contribution of $450,000 in year 1 would not be able to make a further non-concessional contribution until year 4.
If your total income for tax purposes is $33,516 or less, the Government will match your non-concessional super contributions by up to 50 cents in every dollar to a maximum of $500. The co-contribution amount is reduced by 3.33 cents for every dollar of income above $33,516 (and cuts out altogether above $48,516).
The main eligibility criteria are as follows:
- you must make an eligible personal super contribution during the income year into a complying super fund and don't claim a deduction for all of it (a non-concessional contribution)
- your total income (minus any allowable business deductions) for the income year is less than $48,516
- 10% or more of your total income comes from eligible employment-related activities, carrying on a business or a combination of both
- you are less than 71 years old at the end of the income year
Jan works part time and earns $20,000 per annum. She contributes $1,000 after tax to her super fund. The Government will add a further $500 to her super fund soon after her tax return is lodged and processed.
Low Income Superannuation Contribution
The Government will provide a contribution equal to 15% of concessional contributions made, up to $3,333, for low income earners with an adjusted taxable income of up to $37,000. The maximum contribution paid will be $500. The individual must satisfy an income test in which 10% or more of their total income is derived from business or employment. If you lodge an income tax return, you will receive your LISC in your super account after the ATO have processed your income tax return and received information from your super fund about your super contributions. The LISC is designed to refund some of the tax paid on the concessional contributions of low income earners.
Dawn works part time and earns $20,000 per annum. Her employer makes the compulsory 9.25% Superannuation Guarantee (SG) contribution of $1,850 over the year. As the compulsory SG contribution is classified as a concessional contribution, the Government will provide Dawn with an extra $277.50 contribution to her fund.
Superannuation Spouse Contribution
Taxpayers can still claim an 18% tax offset on non-concessional superannuation contributions of up to $3,000 made on behalf of a non-working or low income spouse. The maximum tax offset of $540 is available where the recipient spouse's income (total assessable income plus reportable fringe benefits) is less than $10,800. The tax offset reduces to zero where the recipient spouse's income exceeds $13,799. Contributions you make on behalf of your spouse will count towards their non-concessional contributions cap.
Joel makes a $3,000 after tax contribution to his wife's super fund. His wife does not work and has no other income. As a result of this contribution Joel is entitled to a $540 tax offset in his tax return that will help reduce his tax liability.
Pension Drawdown Rates
As a reminder, individuals drawing a pension from their super funds need to ensure they are drawing at least the minimum required amount this financial year, which is calculated as a percentage of the 30 June 2013 account balance as follows:
Brad is 70 years of age and had a pension phase balance of $500,000 in his super fund as at 30 June 2013. Geoff must draw a minimum of 5.00% of the account balance ($25,000) before 30 June 2014 to ensure he complies with the superannuation rules.
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