A tax rebate is available for super contributions made on behalf of low-income spouses.
The rebate is 18% of the contributions up to $3,000. The maximum rebate is therefore $540.
From 1 July 2017 the rebate is reduced where the spouse’s assessable income + reportable fringe benefits + reportable super contributions are in the range of $37,000 to $40,000.
If the spouse is aged between 67 to 74 (previously 65 to 70) he/she must satisfy a work test, and if the spouse is aged 74 or more, the contributions cannot be accepted by the fund.
Personal Contributions from After-Tax Sources
The concessional and extremely tax effective nature of superannuation in Australia makes the contribution of discretionary personal funds (where available) into superannuation a strategy well worth considering.
While income on assets held personally can be taxed at up to 49% from 1 July 2014, the same income in the superannuation environment is taxed at a maximum of 15%, and, where pensions are commenced, the income can be tax free (subject to the $1.6M balance transfer cap which has the effect of taxing individual member benefits above $1.6M at a maximum of 15% after 1 July 2017). It is noted that the transfer balance cap has increased to 1.7 million from 1 July 2021.
Taxpayers aged 18 years to 64 years do not need to pass a work test in order to be able to make superannuation contributions (For the 2020-21 year the age has increased to 67 years). Taxpayers aged 67 years to 74 years will need to have worked in gainful employment for at least 40 hours in a consecutive 30 day period in that same financial year, prior to making any contributions. Taxpayers aged 75 years or older are currently unable to make personal superannuation contributions.
The limit for personal contributions from after tax sources is currently $100,000 per annum (From 1 July 2021, this has increased to $110,000 per annum), with the opportunity to bring forward the following two year’s limit such that an undeducted contribution of up to $300,000 (From 1 July 2021 this has increased to $330,000) may be made in year one (see “Superannuation Re-contributions” above).
Please be aware that contributions in excess of the above limits will be subject to tax at 49% if left in the superannuation fund. Excess non-concessional contributions made after 1 July 2013 can be withdrawn, together with 85% of the deemed associated earnings thereon, and taxed at the member’s marginal tax rate. Contact us prior to 30 June if you believe the above contribution limits have been exceeded.
The Tax Office has confirmed in a Tax Ruling that an “in-specie” contribution of certain assets (such as listed investments and business real property) into superannuation is acceptable, as long as certain criteria are met.
$1.6m Super Transfer Balance Cap (1.7M from July 2021)
A $1.6 million cap per person on the amount of superannuation benefits which can be held in the tax free pension phase was introduced from 1 July 2017.A maximum limit of $1.6 million can be kept in retirement phase to pay pensions. Earnings on investments within pension accounts (retirement phase) will continue to be exempt from tax. Superannuation balances above $1.6 million can remain in super in the accumulation phase. Income is taxed at 15%. Capital Gains are taxed at 10% if the asset is held for longer than 12 months. These are still concessional rates of tax. The transfer balance cap has increased to $1.7 million from 1 July 2021.
Given the tax rates within superannuation are still concessional when compared to other entities such as companies, trusts and individuals, we recommend you consider retaining as much as possible of your existing funds within superannuation, particularly where your ability to make contributions in the future is or becomes limited.
It is possible to segregate investments within a SMSF. The trustees may be able to select which specific assets will support the pensions (and will be tax free and CGT free) and which assets will be in the accumulation account (taxed at 15%) where the individual members combined superannuation entitlements are less than $1.6 million.
Where member balances are in excess of $1.6 million segregation is not available.
If your total superannuation balances are near to or over $1.6 million you will need to contact us to discuss your circumstances and the action to be taken.
Self-Managed Super Funds
Ensure that the in-house asset test is not breached (no more than 5% of the total market value of the fund’s assets to be held in investments, loans or leases with related parties). There are some exceptions to this, for example business real property.
Ensure that artworks and collectibles purchased since 1 July 2011 satisfy the rules regarding storage, leasing, insurance and usage. Ensure artworks and collectibles purchased pre-1 July 2011 satisfy these rules from 1 July 2016.
Ensure that the fund’s investment strategy has been formulated, reviewed, updated and implemented and evidence is available of this strategy for audit purposes.
Trustees must consider whether the fund needs to hold life and TPD insurance for members. Review existing insurances to determine if it is more tax effective to hold the policies inside or outside of super.
Bank details (BSB, Bank name and bank account number)
Electronic service address – for this purpose there are many SMSF messaging providers listed on the ATO website at http://www.ato.gov.au/super/superstream/self-managed-super-funds/electronic-service-address/register-of-smsf-messaging-providers/Under “Super Stream” reforms all SMSFs must receive contributions from non-related employers electronically. Additionally, the employer must send an electronic message advising details of the contribution to the SMSF via an electronic service address (see below). If this is relevant to you, we recommend that you provide your employer with the following so that employer contributions can continue to be made to your fund:
Confirm that the trust deed is up to date with the latest best practice and includes appropriate clauses to recognise recent legislative amendments such as transition to retirement income streams, non-lapsing binding death benefit nominations, release of excessive contributions etc.
Ensure that the minimum pension for 2020/21 has been withdrawn by 30 June 2021 based on your age as follows. The current minimum drawdown percentages, together with the reductions for the 2021 and 2022 income years, are also outlined in the following table:
The Government will be temporarily reducing the superannuation minimum drawdown amounts for account-based pensions and similar products by 50% for the 2020, 2021 and 2022 income years. This basically means that the total minimum annual pension amount that a superannuation fund is otherwise required to pay to a member receiving a pension from the fund (e.g., an account-based pension) will be reduced by half for these three income years.
If you have commenced a transition to retirement pension, ensure that no more than 10% of the capital value of the income stream at the start date or 30 June 2021, whichever is later, has been drawn.
Early access to Superannuation Benefits
Under the existing ‘compassionate grounds’ conditions of release, an individual can access their preserved superannuation benefits (as a lump sum), subject to any cashing restrictions, on a number of different (specific) grounds where certain conditions are satisfied. For example, an individual who satisfies certain conditions could access their superannuation entitlements under this condition of release in order to pay for certain medical treatment, or to enable the individual to make a repayment on a home loan in order to prevent the mortgagee selling their home.
The Government introduced a new compassionate ground of release that allowed individuals to access their superannuation entitlements where those benefits were required to assist them to deal with the adverse economic effects of the Coronavirus, but only where one or more of the following requirements were satisfied:
The individual was unemployed.
The individual was eligible to receive the Jobseeker Payment, Youth Allowance for jobseekers, Parenting Payment (which includes the single and partnered payments), Special Benefit or Farm Household Allowance.
On or after 1 January 2020:
the individual was made redundant; or
the individual’s working hours were reduced by at least 20%; or
if the individual is a sole trader – their business was suspended or there was a reduction in the business’s turnover of at least 20%.
Under this compassionate ground of release, eligible individuals were able to access as a lump sum of up to $10,000 of their superannuation entitlements before 1 July 2020, and a further $10,000 from 1 July 2020 (but subject to the six-month time frame noted below).
Eligible individuals who were looking to access their superannuation entitlements under the above ground of release were able to apply directly to the ATO through the myGov website (at www.my.gov.au) and certify that the above eligibility criteria are satisfied.
An individual was able to apply for early release of their superannuation entitlements from mid-April 2020. However, note that no application could be made after the end of the period of six months from the day on which the new compassionate ground of release commenced.
Lump sum superannuation withdrawals under this new compassionate ground of release were not taxable to the recipient (i.e., were tax-free), and the amount withdrawn did not affect Centrelink or Veteran’s Affairs payments.
Significant tax savings can be achieved via salary sacrificing additional superannuation contributions or by including fringe benefits within your salary package.
Importantly, salary sacrificing arrangements must be put in place prior to the period of service to be effective from a taxation point of view.
With the availability of “transition to retirement pensions” (also known as “working pensions”), taxpayers who have reached their preservation age but wish to stay in the workforce can access their superannuation as a non-commutable income stream without permanently retiring.In certain circumstances it can be tax effective to salary sacrifice employment income into superannuation and use the working pension to pay living expenses. Please contact our office if you would like to discuss this strategy further.
If you are renegotiating your salary package for the next financial year you may wish to contact us to discuss these and other options available to you as there are a number of requirements to commence transition to retirement pensions. You should also take into account the new concessional contribution caps when working out the amount of any salary sacrifice superannuation contributions for the 2020/21 tax year.
The amount that can be provided to employees of not for profit entities for salary sacrificed meal entertainment benefits has been limited to a grossed up cap of $5,000 with effect from 1 April 2016. This may reduce the tax and other benefits available to such employees from their salary sacrifice arrangements.
Employees of small businesses (turnover under $10 million from the 2016/17 financial year) may be provided with more than one work related portable electronic device, even where the functions are similar, without imposition of FBT, from 1 April 2016.
Superannuation Payments by Employers
When an employer pays superannuation it can be in the form of an in specie transfer of specific assets (e.g. shares or business real property) without incurring fringe benefits tax.
Employers receive a tax deduction for all superannuation contributions made on behalf of employees. Please note however, that tax penalties at the individual’s marginal tax rate plus an interest charge apply to concessional (pre-tax) contributions (from all sources) in excess of the following limits:
Employers must comply with the SuperStream rules. These rules require employers to make all super contributions and associated contribution data electronically. Employers will need certain information from each employee’s superannuation fund for this purpose as well as payroll software that conforms to SuperStream. Information required includes the details of the fund’s ABN and bank account as well as an electronic service address. Employees with SMSFs may need to apply for this.
From 1 July 2018 employers with 20 or more employees are required to report to the Commissioner through Single Touch Payroll-enabled software. The following information must be reported on or before the day you withhold from a payment (the pay day):
payment information, including salary or wages, allowances, deductions, etc.
superannuation liability information or ordinary times earnings (OTE).
Employers who fully report all the information required through Single Touch Payroll will not have to comply with a number of other reporting obligations under the existing law. This includes providing certain payment summaries and the corresponding payment summary annual report. They will now only need to provide a finalisation declaration.
STP becomes mandatory from 1 July 2018 for employers with 20 or more employees. You can choose to report through Single Touch Payroll if your software is ready. Once you are setup, the option to report a payment to the ATO will be presented for each pay run and your payroll information will be filed with the tax office. Please contact us to discuss this further if you have any questions.
The new reporting rules essentially require, from 1 July 2018, ‘real time’ reporting of salary and wages, PAYG withholding and superannuation information to the ATO by ‘substantial employers’ (i.e., those with 20 or more employees) directly from their payroll software, giving the ATO almost instant access to key tax-related information.
By aligning payroll functions with the regular reporting of taxation and superannuation obligations, it is anticipated that the new rules will reduce the compliance burden (and costs) for employers, and also facilitate early intervention by the ATO as part of its compliance focus.
From 1 July 2019, STP was broadened to include all employers (i.e., including employers with 19 or less employees).
However, the Commissioner had a discretion to defer the start date for an employer who may not be ready to commence reporting under STP, or to exempt an employer on a ‘class’ or ‘individual’ basis.
From 1 July 2021, STP reporting becomes mandatory for all employers.
Superannuation for the Self-Employed
From 1 July 2017, individuals earningmore than $250,000 have their concessional superannuation contributions taxed at 30% rather than 15%. Despite this increased rate, concessional superannuation contributions can still be a tax effective strategy for higher income earners.
A tax deduction for superannuation contributions was available to self-employed, or substantially self-employed, persons. Deductibility has been expanded to all taxpayers under age 75 from 1 July 2017.
From 1 July 2017, the 10% rule for tax deductibility of member contributions is removed and it may not be necessary for employees to maintain salary sacrifice arrangements (but check availability for public sector funds and some corporate defined benefit funds).
Superannuation is only deductible when paid. Contributions for the June 2021 quarter must be received by the relevant Fund by 30 June 2021 for a deduction to be claimed in 2020/21.
Contributions for the self-employed are tax deductible. Please note unfortunately that tax penalties apply if you exceed the contribution caps so be sure to confirm with us if you are unsure (currently $25,000 for all irrespective of age from 1/7/2017 to 30/06/2021 and $27,500 from 1 July 2021)
Contact us prior to 30 June if you believe the above contribution limits have been exceeded.
Taxpayers aged 18 years to 67 years do not need to pass a work test in order to be able to make superannuation contributions. Taxpayers aged 68 years to 74 years will need to have worked in gainful employment for at least 40 hours in a consecutive 30 day period in that same financial year prior to making deductible contributions.
Taxpayers aged 75 years or older are unable to make personal superannuation contributions.