Your age might affect your end of financial year superannuation contribution approach and how much tax you’ll pay, and this needs to be considered with some urgency as June 30 is now rapidly approaching.
While some financial transactions can and should wait until next financial year, there may be others that need to be actioned well BEFORE June 30.
Let’s address the last point first.
Typically financial transactions such as making super contributions by methods such as BPay, could take a couple of days to land in your superannuation account. If you wait until the very last moment, there is a very good chance your superannuation fund will not receive your contribution before 30 June
While the contribution will still benefit your retirement savings, it won’t count towards this financial year’s tax outcomes if it misses the June 30 deadline (the deadline being when it is received by your superannuation fund, not when the funds leave your personal or employer’s bank account).
Super Contribution Caps
While business owners have the option to contribute to their own super or not, for many very high-income earners your employer’s super contribution arrangements (as part of your remuneration package) could well and truly exceed the $27,500 annual cap.
If you are looking to make the most of the tax effective super environment, you may be able to take advantage of the catch-up contribution rule. This rule allows unused contribution cap amounts from the preceding five years (since FY 2018-19) to be contributed in addition to the annual cap amount in the current financial year.
You can also contribute up to $110,000 per year of your surplus cash as a non-concessional (after tax) contribution. You can also take advantage of the bring-forward rule, which quite literally allows you to ‘bring forward’ up to three years’ worth of non-concessional contributions. That’s up to $330,000 you can contribute to your super account in the current financial year.
This may be beneficial for those with surplus cash that’s not needed for other purposes including offsetting debt as contributing it to super may provide a worthwhile tax effective retirement wealth option.
TSB – Total Super Balance
How much you can contribute to super can be limited by your Total Super Balance (TSB).
Your TSB can affect non-concessional and the ability to use the bring-forward provisions. If at 30 June 2022 your TSB was above $1.7 million, you are ineligible to make any non-concessional contributions. If your TSB is $1.48M or above, and less than $1.7M, you may be able to make non-concessional contributions. From 1 July, the TSB increases to $1.9 million and the associated lower tier also increases from $1.48M to $1.68M.
In our experience it’s not uncommon for senior executives, consultants and mining and resources business owners to continue working well beyond the usual retirement age.
While age may be no impediment to their careers, it can affect at least two superannuation opportunities.
While the previous work test for those 67-74 years of age, no longer applies if you want to make non-concessional voluntary contributions to super this financial year there are still relevant rules.
These include being under 75 years of age; your TSB must be under $1.7M; and the contributions must be made within 28 days of the end of the month you turn 75.
If your birthday is later in the calendar year, and because the TSB will increase from 1 July 2023, it may be better to defer the contribution until the next financial year.
Upsizing your super
In something of a contradiction of terms, you may be eligible to upsize your super using the downsizer rule, and without actually downsizing your lifestyle.
This is another age-related opportunity and the qualifying age recently reduced to 55 years.
If you were to sell your family home, you could contribute proceeds from the sale of up to $300,000 each (if you’re a couple) to superannuation without being required to adhere to the usual annual contribution caps or TSB tests.
While called the downsizer rule, there is no actual obligation to downsize your living arrangements. You could of course opt for a smaller or less valuable home, but there’s no reason why you couldn’t purchase another home of equal or greater value and contribute cash or assets to your superannuation fun.
At this time of year there are numerous tax deductible items that could help reduce your taxable income.
Commonly these include bringing forward and paying insurance premiums, making donations to ATO registered charities, and paying the annual interest on debts.
In consultation with your accountant, there may be other opportunities relating to the purchase of assets including operating equipment that could benefit both your tax position and your overall wealth.
Act now if you haven’t already and make any voluntary or catch-up contributions to your super fund well before June 30.
If you are nearing your 75th birthday you will need to make any non-concessional contributions within 28 days of the end of your birth month. Depending on the timing of your birthday, you may be able to defer the contribution to take advantage of next year’s TSB (which increases to $1.9m) to get more into your super account.
If you’re over 55 years of age and you’ve recently sold your home, by taking advantage of downsizer rule you may be able to contribute up to $300,000 (each if you are part of a couple) to your super fund without penalty.
Of course, these rules come with a raft of conditions that may need advice and a clear strategy in context of your overall financial circumstances. For financial planning that aims to make the most of your high earnings including your ESS, please contact James Marshall on +61 (0) 7 3007 2000 or email firstname.lastname@example.org
To learn more about James, visit this link.
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*Please note: For advice and services relating to this matter that are not offered under the Fortnum Private Wealth AFSL, in accordance with our collaborative advice model, when required, such matters are referred to appropriately qualified professionals.