With 30 June rolling up fast, now is the time to implement end of financial year super strategies that will provide the dual benefits of contributing more to your retirement savings and less to the tax office.
Taking action now, as part of your tax planning approach, will help you make the most of current super rules while providing options for the coming financial year as some super rules are set to change from 1 July.
Contribute more to super
Super contribution caps for both concessional contributions (pre-tax) and non-concessional contributions (after-tax) have increased. Up respectively from $25,000 last financial year to $27,500 this year and $100,000 to $110,000 per year effective now and ongoing.
We also remind you Super Catch-Up legislation remains in play allowing those who have not used up all of their concessional (before tax) contributions cap since 1 July 2018 can make additional contributions to top up their super balance, over and above the current year’s contribution cap. This only applies if your total superannuation balance at last June 30 was below $500,000.
Salary sacrifice or personal deductible contributions
Salary sacrificing or making personal deductible contributions of surplus cash to super will allow you to make the most of super’s low 15% tax environment while providing opportunity for maximising your annual concessional contributions to boost your retirement savings.
However, if you already have salary sacrifice arrangements in place, it is important to check your contributions to date. This financial year, the Employer Super Guarantee increased to 10% (up from 9.5% last year) which may mean, when added to your salary sacrifice contributions, could put you over the cap limit.
It’s quite common for high earners to exceed their contribution cap. While it does create a tax implication, there are options to pay this associated tax. May we recommend you seek financial advice to determine which course of action may be appropriate for you.
Moving forward, the Employer Super Guarantee will increase to 10.5% from 1 July, as part of staged annual increases which will eventually become 12% by 2025/26.
Consider non-concessional contributions
Making additional after-tax contributions to your super is a strategy well worth considering, particularly as you move closer to retirement. If you come into a large sum of money (for example an inheritance or sale of an investment property) adding it to your super as a non-concessional (after tax) contribution will provide an additional boost to your retirement savings. Invested wisely within your super account, it may provide opportunity for further growth though dividends and compounding interest.
The bring-forward rule, as the name suggests, enables you to bring forward three years of non-concessional contributions ($110,000 per year) into a single financial year. This year you can contribute up to $330,000 (up from $300,000) but there are other considerations to be considered including whether the bring-forward contribution will exceed the $1.7M total limit of your super balance.
The Downsizer rule is already in effect, allowing older Australians to sell their family home and contribute up to $300,000 (or $600,000 per couple) to their superannuation, over and above their annual contribution caps or total super account balance.
In further good news, the age from which you can implement a Downsizer strategy will be lowered from 65 years to 60 years on 1 July 2022. This represents a significant opportunity for Australians to get more money into super earlier and for longer so they may benefit from tax savings and capital growth benefits.
The Work Test
In this financial year, those aged between 67 and 74 will need to meet the work test if they wish to make non-concessional contribution or salary sacrifice contribution into superannuation.
However, from 1 July 2022, those under 75 years of age will be able to make personal (non-concessional) super contributions and salary sacrificed contributions without having to meet the work test. While existing contribution cap conditions apply, this development creates additional very welcome retirement saving flexibility. Note, a work test (or work test exemption) still applies for personal contributions that are to be claimed as deductions.
Keeping more in your super
The recent Federal Budget announced it would extend the reduced minimum drawdown rate provision for another year. This provides retirees with the option to leave more of their retirement saving in their super account, where it can benefit from any growth opportunities. The minimum annual payment required for account-based, allocated and market-linked pensions and annuities was reduced by 50% for the 2019–20 financial year and will now remain in place until 2022-23.
For our Stratus clients, particularly those with progress meetings due now, end of financial year superannuation strategies will be a key agenda item that we will discuss with you, and in alignment with your accountant.
As always, we invite you to pass this article on to those close to you who could benefit from the type of financial advice and support you’ve experienced yourself. Please feel free to share our contact details with family, friends and colleagues as we’ll be pleased to help.
Stratus Financial Group helps professionals, executives, business owners, families and retirees manage their complex financial affairs and coordinate their professional advisers.
Stratus Financial Group and its advisers are Authorised Representatives of Fortnum Private Wealth Ltd ABN 54 139 889 535 AFSL 357306. This is general advice only and does not take into account your objectives, financial situation or needs, so you should consider whether the advice is relevant to your personal circumstances. You should also read the relevant Product Disclosure Statements (PDS) before making any financial decisions.