With the Federal election decided and the Liberal/National Party Coalition returned to government what can we expect for superannuation and especially for self-managed superannuation funds?
The best news is that franking credit refunds will continue to all taxpayers and we expect to see a reintroduction of legislation that was before parliament but lapsed when the election was called, as well as the introduction of legislation related to this year’s budget announcements.
One of the lapsed bills included a superannuation guarantee opt out for high-income earners with multiple employers to avoid exceeding the concessional contribution cap of $25,000. The same legislation included a change to the definition of non-arm’s length income where the relevant expenses were not on an arm’s length basis.
Other legislation that lapsed included amounts from limited recourse borrowing arrangements entered into after 1 July 2018 in a person’s transfer balance cap account for related party loans or if they meet a condition of release, such as retirement or reaching age 65.
This year’s budget proposed an increase in the maximum number of SMSF members from four to six, an increase in the age when the work test cuts in for contributions and an extension of spouse contributions to age 75. All welcome changes, and useful for anyone wishing to make last-minute contributions to provide for retirement.
That’s a summary of the changes we expect to be put before parliament in the next few months.
Current state of play
It’s also worth a quick recap of some of the current rules that apply as we are just five weeks out from the end of the current financial year.
You can make non-concessional contributions of up to $100,000 if you qualify and have a total superannuation balance of less than $1.6 million. If you are between 65 and 75 years old you must meet a work test of at least 40 hours in 30 consecutive days to contribute.
If you are under 65 it is possible to access the ‘bring-forward’ rule and make non-concessional contributions of up to $300,000 over a fixed three-year period if your total superannuation balance is no more than $1.4 million. But if your total superannuation balance is between $1.4 and $1.5 million you can make non-concessional contributions of up to $200,000 over a two-year fixed period. If your total super balance is between $1.5 and $1.6 million your non-concessional contribution is limited to the standard annual limit of $100,000.
Your total super balance is calculated as the amount you had in all super funds on 30 June in the previous financial year.
Personal superannuation contributions
You can claim a tax deduction for personal superannuation contributions providing you have notified the fund of your intention and the fund has acknowledged your notice in writing. The maximum amount for personal superannuation contributions, including any employer or salary sacrifice contributions, is $25,000 without incurring a tax penalty.
As an example, if your salary for the financial year is $100,000 your employer would be required to make a 9.5 per cent super guarantee contribution of $9,500, which would allow you to make a personal tax-deductible contribution of up to $15,500 ($25,000 minus $9,500).
Catch-up concessional contributions
You may have become eligible to claim personal ‘catch-up’ concessional contributions from 1 July 2018 if you meet certain conditions. The ‘catch up’ contribution is the difference between concessional contributions you make plus those that are made for you, and your annual concessional contributions cap of $25,000. You can carry forward the shortfall for up to five years and can claim a personal tax deduction up to the catch-up amount if your total superannuation balance as at 30 June in the previous financial year is below $500,000.
As an example, if you earnt $100,000 for a financial year and your employer contributed the compulsory super guarantee contribution of $9,500 (9.5 per cent of $100,000) you would have an unused catch-up concessional contribution of $15,500 ($25,000 minus $9,500) which you can carry forward for the next five years.
Depending on your income over the five-year period and your total super balance you could choose to claim an additional tax deduction for the unused catch-up concessional contributions. The amount of the deductible contribution could be up to $40,500 ($25,000 plus $15,500) depending on any other concessional contributions made by your employer. This would be the concessional contributions cap for the year and the carry forward shortfall from the previous year.
Division 293 tax
If you are a high-income earner you are liable to pay an additional 15 percent on concessional contributions up to the standard cap amount of $25,000 if your adjusted taxable income exceeds $250,000.
This means that if you have an adjusted income of at least $250,000 it will trigger an additional 15 per cent tax (or 30 per cent total rate) on any concessional contributions within the $25,000 cap that are in excess of the threshold.
As an example, if you had an adjusted taxable income of $275,000 and concessional contributions of $25,000 were made to super you would end up with an additional tax bill of $3,750 ($25,000 multiplied by 15 per cent). However, if your adjusted taxable income was $260,000 and concessional contributions of $25,000 were made to super then only $10,000 would be taxed at the additional 15 per cent ($1,500).
I’m sure many of you are feeling a bit more relaxed about your superannuation now the election result is known and I believe the outlook is for a business as usual approach to super at least for a short while as we wait to see whether some of the lapsed legislation and budget proposals make it through the parliament.
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