End of Year Tips for Self Managed Super Funds

With more and more people opting to take responsibility for managing their own superannuation, it’s important to understand what can be done in the lead up to the end of the financial year on 30 June to maximise investments.

ING Australia’s Head of Self Managed Super Funds, Graeme Colley has outlined 10 key strategies to help people managing their own super get the most out of their funds before June 30, along with a checklist covering off the main benefits from each strategy.

Last Minute Contributions

Graeme Colley says people need to understand the two types of contributions that can be made into super.

“Concessional contributions to super are those which are eligible for a tax deduction. These include employer contributions, Superannuation Guarantee contributions and salary sacrifice contributions. Non-concessional contributions are personal contributions, spouse contributions and child contributions for which no tax deduction has been claimed,” Mr Colley said.

“For anyone younger than age 50 the concessional contributions cap is $50,000 and for anyone age 50 and above it is $100,000. The non-concessional contributions cap is $150,000, however, for anyone under age 65 it is possible to make non-concessional contributions of up to $450,000 over a three year set period. Any concessional and non-concessional contributions which are in excess of the cap are taxed at penalty rates.

“Don’t forget that once you reach age 65 contributions can only be made to superannuation if you meet the work test of 40 hours within 30 consecutive days during the financial year. Once you reach age 75 contributions cannot be made to superannuation as a general rule.

“Contributions can be made in cash or, for those who have a self-managed superannuation fund, commercial property, farming property, listed and non-listed investments can be transferred. Don’t forget there may be capital gains tax and stamp duty implications relating to the transfer to take into consideration.”

Salary Sacrifice

Graeme Colley suggests that salary sacrificing is a great way of making tax effective contributions to superannuation.

“It is best to consider salary sacrifice at the beginning of a financial year rather than at the end because it gives you a better opportunity to salary sacrifice a greater amount of your salary.

“Remember, 1 July is not that far away so planning your salary sacrifice to superannuation now is a good strategy.  Talk to your employer to see whether salary sacrifice is available and how much of your income can be salary sacrificed,” Mr Colley said.

Superannuation Co-contribution

For anyone who earns less than $58,980 making an after tax contribution to superannuation can have a number of advantages if they qualify for the co-contribution. The main qualification is that you must be under 71 and at least 10% of your total income must be earned from salary and reportable fringe benefits.

The maximum amount of the co-contribution is $1,500 if you earn no more than $28,980 and contribute $1,000 (about $20 each week) as an after tax superannuation contribution. Once you earn more than that the maximum co-contribution that you can receive reduces and when you earn $58,980 or more no co-contribution is available.

If you have children who have just commenced working the co-contribution may provide an incentive to introduce them to superannuation if they earn less than the maximum income threshold of $58,980.

Personal Tax Deductible Contributions

“What many people don’t know is that they may be eligible to claim a tax deductible personal superannuation contribution where they are not working or earn a small amount from employment. This is available to people who are self-employed, anyone who earns most of their income from investments or as a pension.

“Providing you earn less than 10% of your income and reportable fringe benefits from employment then you may qualify. Until 30 June the amount you can claim as a tax deduction depends on your age. If you are under age 50 the maximum amount taxed at concessional rates is $50,000 and if you are 50 or older it is $100,000. Don’t forget once you reach age 65 you need to meet certain work tests if you wish to contribute to super,” Mr Colley said.

Purchasing Insurance in your self-managed superannuation fund

If you have your self-managed superannuation fund purchase total and permanent disability insurance (TPD) and life insurance it may be more tax effective if you do it through the fund.

The strategy involves holding your TPD and life insurance through super and the fund paying premiums from any contributions or investment income earned by the fund. The superannuation fund is eligible to claim a tax deduction for the premiums paid for TPD and life insurance.

Contributions Splitting with Your Spouse

Mr Colley says that the superannuation rules allow you to split your contributions with your spouse.

“This comes in handy for those members of superannuation funds who have a spouse between 60 and 65 who is working. The reason age 60 or over is important is that any amounts received from taxed superannuation funds for someone 60 or over will be tax free,” Mr Colley said.

The amount that can be split depends on the type of contribution and when it was made. To split the contribution you need to apply in the financial year after the contribution was made or if you are closing your superannuation account the split can be made during the financial year.

Spouse Contributions to Super

For those who have a spouse who earns up to $13,800 making a contribution of up to $3,000 can have some tax advantages. By making an after tax contribution to superannuation for your spouse you can receive a tax offset (rebate) of up to $540. To qualify for the maximum tax offset your spouse must earn less than $10,800, including reportable fringe benefits and you need to contribute $3,000 for your spouse.

Combining Your Superannuation Benefits

“You may find it useful to combine your superannuation benefits if you have amounts in a number of superannuation funds. The reason is that by combining your superannuation benefits and some careful planning you may end up with a greater tax free amount from super. This is important if you will be taking a superannuation benefit prior to reaching 60 or any death benefits from superannuation will be paid to non-dependants such as a child over 18," said Mr Colley.

“Of course, it can be worthwhile to combine your superannuation benefits at anytime to reduce the costs of keeping your money in super.”

Tax File Numbers

Graeme Colley suggests it’s important that your superannuation fund has a record of your tax file number.

“The reason is that if the fund does not have your tax file number it may deduct tax of 46.5% from the contribution made on your behalf. Also, without your tax file number it is not allowed to accept contributions made by you from after tax amounts. This will mean less in your superannuation account and you may miss out on the generous concessions available,” said Mr Colley.

Move to Pension Phase Early

“Did you know that if you commence a pension from 1 June in any financial year there is no requirement to receive any pension payment until the next financial year? The advantage of this is that by moving into pension phase any income and capital gains earned on investments which are used to support your pension in your self-managed superannuation fund are tax free. This can mean a greater amount of the income of the superannuation fund will be tax free until you receive your first pension payment.

“If you turn age 60 next financial year then it may be to your advantage to commence the pension during June this year and receive a tax free pension from your 60th birthday. That way you can have access to the tax free income on pension investments in your self-managed fund and a tax free pension once you reach age 60.

End of financial year super checklist

The following checklist is a useful summary of some of the year end strategies and what they can mean for you.

Strategy	What is it?	What it means
Last Minute Contributions	Contributing to superannuation allows access to tax concessions and grow your retirement savings	• Boost your retirement savings earlier • Save on income tax
Salary Sacrifice to Superannuation	Forgo part of your salary and have it paid into superannuation	• Boost your retirement savings earlier • Save on income tax
Co-contributions	Contribute after tax amounts to superannuation to receive a government co-contribution	• Boost your retirement savings • Get the government to contribute to your superannuation
Personal Deductible Contributions	Allows you to claim a tax deduction for personal  superannuation contributions if you qualify	• Boost your retirement savings • Save on income tax
Insurance via Super	Hold your TPD and life insurance via super and have the fund pay the premiums	• Reduce your tax liability through deductible contributions • Top-up insurance to ensure you have enough • Obtain insurance cover with fewer restrictions
Contribution Splitting with your spouse	Split concessional contributions with your spouse	• Increase your spouse’s retirement savings • Reduce your tax liability by salary sacrificing to superannuation • Increase your wealth by paying less tax
Spouse contributions to Super	Make after tax contributions for your spouse so that you can obtain a tax offset	• Increase your spouse’s retirement savings • Reduce your tax liability by receiving a tax offset against your income tax liability • Increase your wealth by paying less tax
Combining Super Benefits	Combine superannuation benefits by rolling over benefits to your self-managed superannuation fund	• Reduce fees • Increase your retirement savings
Tax File Numbers	Report your Tax File Number to your self-managed superannuation fund	• Allows the trustees to accept contributions made to the fund • Allows the fund to accept co-contributions for you • Permits the fund to accept some contributions without charging penalty rates of tax.
Moving to Pension Phase Early	Commence your pension after 1 June in the financial year prior to receiving the first payment	• Boost your retirement savings • Commence tax free income on the fund investments which are used to pay the pension as early as possible.