2017/18 Tax Planning – Superannuation
- The Concessional contribution cap is $25,000. This applies to all individuals regardless of their age.
- The Non-concessional contribution cap is $100,000.
- Individuals whose total superannuation balance with $1.6 million or more as at 30 June 2017 are no longer eligible to make non-concessional contributions for the 2017/18 year. This is assessed as at 30 June each year.
Personal superannuation contribution
- All individuals under the age of 75 are eligible to claim a tax deduction for personal superannuation contributions (concessional contribution).
- The 10% test to determine an individual’s eligibility has been removed.
- The work test will however be remain for individuals aged 65 to 74 years of age.
Division 293 income threshold
- The income threshold on which Division 293 tax applies has been lowered from $300,000 to $250,000.
- Individuals with an adjusted taxable income above this threshold will pay an additional 15% tax on concessional contributions that aren't in excess of their annual concessional superannuation contribution cap.
Tax offset for spouse contributions
- The spouse contributions tax offset of up to $540 can be applied if you make a non-concessional contribution (18% tax offset up to $3,000) on behalf of your spouse if their adjusted taxable income is $37,000 or less (the tax offset phases out at $40,000).
- The normal non-concessional contribution rules continue to apply for your spouse.
Transfer balance cap
- From 1 July 2017 the total amount of superannuation that can be transferred into the tax-free retirement pension phase is capped at $1.6 million.
Total superannuation balance
- The total superannuation balance applies from 1 July 2017 and is a way to value an individual’s total superannuation interests on a given date. If an individual’s total superannuation balance is $1.6 million or more as at 30 June 2017, then the individual will not be eligible for the following in the 2017/18 year (This is assessed as at 30 June each year):
- Non-concessional contributions
- Government co-contribution
- Tax offset for spouse contributions
From 1 July 2018
Downsizing contributions into superannuation
If you are 65 years old or above and meet the eligibility requirements, you may be able to choose to make a downsizer contribution into your superannuation of up to $300,000 from the proceeds of selling your home.
You will be eligible to make a downsizer contribution to super if you can answer yes to ALL of the following:
- you are 65 years old or above at the time you make a downsizer contribution (there is no maximum age limit)
- the amount you are contributing is from the proceeds of selling your home where the contract of sale was exchanged on or after 1 July 2018 (there is no requirement for you to purchase another home)
- your home was owned by you or your spouse for 10 years or more prior to the sale
- your home is in Australia and is not a caravan, houseboat or other mobile home
- the proceeds (capital gain or loss) from the sale of the home are either exempt or partially exempt from capital gains tax (CGT) under the main residence exemption, or would otherwise be entitled to such an exemption such as a pre-CGT (acquired before 20 September 1985) asset
- you have provided your super fund with the downsizer contribution form either before or at the time of making your downsizer contribution
- you make your downsizer contribution within 90 days of receiving the proceeds of sale, which is usually the date of settlement
- you have not previously made a downsizer contribution to your super fund from the sale of another home.
Your downsizer contribution is not a non-concessional contribution and will not count towards your contributions cap. The downsizer contribution can still be made if an individual has a total super balance greater than 1.6 million.
Your downsizer contribution will not affect your total super balance until your total super balance is re-calculated to include all your contributions, including your downsizer contributions, on 30 June at the end of the financial year.
The downsizer contribution will count towards your transfer balance cap when you move your super savings into retirement pension phase, currently set at $1.6 million.
If you receive Centrelink or other benefits such as the age pension, then this may have an impact on your entitlement, so it is important to assess this before making the downsizer contribution.
Carry-forward unused concessional contributions
From 1 July 2018, you will be able to 'carry-forward' any unused amount of your concessional contributions cap. You will be able to access your unused concessional contributions cap on a rolling basis for 5 years. Amounts carried forward that have not been used after five years will expire.
The first year in which you can access unused concessional contributions is the 2019/20 year.
You will only be able to carry-forward your unused concessional contributions cap if your total superannuation balance at the end of 30 June of the previous financial year is less than $500,000.
If you have or will commence a tax-free retirement pension before 30 June 2018, ensure you have taken the required minimum pension before 30 June 2018 to ensure the tax-free concessional treatment continues to apply.
This strategy allows an individual to bring forward the 2018/19 concessional contribution cap without triggering an excess concessional contribution and claiming the full tax deduction in the 2017/18 year.
This is a great opportunity for individuals who will have:
- Unusually high personal income during the 2017/18 year such as the sale of a rental property or shares or
- A significant drop in income in the 2018/19 year such as retirement
Bob’s estimated 2018 taxable income is $240,000 which includes $100,000 in salary and $140,000 in capital gains from the sale of a rental property.
Bob is also retiring in June 2018 and will not have any employment income in the 2018/19 year. His employer super guarantee for the 2017/18 year is $9,500 and he satisfy all the requirements for making super contributions.
Bob receives advice and makes a $15,500 personal concessional superannuation contribution into his super fund to maximise the 2017/18 concessional contribution cap of $25,000.
On top of this, Bob makes another $25,000 personal concessional superannuation contribution in June 2018 to his super fund which is allocates to a reserve. This will be counted towards his 2018/19 concessional contribution cap.
By adopting this strategy, Bob is able to claim a total tax deduction of $40,500 as a tax deduction in the 2017/18 year with an estimated $12,960 tax saving.
Note: It is extremely important to contact us or your adviser before implementing this strategy as there are various factors to consider. This strategy may only be viable if you have a self-managed super fund (SMSF) as many public listed funds may not offer a contribution reserve. If you want to know more about SMSF including the setup, please do not hesitate to contact us.
Aged 60 or over and planning on changing jobs or retiring?
If you are aged 60 or over and will be ceasing a gainful employment arrangement, you may be able to start a retirement pension on your existing superannuation balance capping at the Transfer Balance Cap of $1.6 million for the 2017/18 year.
Income generated from the retirement pension balance will be tax free and any pension you draw will non-taxable. You will however be required to draw a minimum pension each year.
If you are aged 64, this may be your last opportunity to contribute into super.
This will be your last opportunity to make a large super contribution using the bring forward rule. The amount of non-concessional contribution you can bring forward will however depend on your total superannuation balance as at 30 June 2017.
Anyone aged 65 or over must satisfy a work test before a super contribution can be made. In short, the work test involves working at least 40 hours within 30 consecutive days in the financial year which you plan to make the super contribution.
Once you turn 75, you cannot contribute to super except if it relates to the Superannuation Guarantee contributions. If you satisfy the work test, this may be your last opportunity to make a superannuation contribution. Special rules apply for the downsizing contribution which starts on 1 July 2018.
The information provided is purely factual and general in nature and does not take account of your personal objectives, situation or needs of any particular person. If you require personal advice you should contact us or consult an appropriately licensed or authorised financial adviser.
The information is objectively ascertainable and therefore, does not constitute financial product advice.
The information considers taxation implication but it is only one of the matters that you need to consider when making a decision.