How trustees can get the best outcome before 30 June

The end of the financial year is the time for SMSF trustees to focus on financial planning and strategy, particularly as it relates to superannuation.

SMSF Professionals’ Association of Australia (SPAA) Director Technical and Professional Standards, Graeme Colley, says there are various strategies to get the best outcome at 30 June, including making after-tax contributions, and, if aged 60 or above, using the higher tax deductible contributions or drawing down a lump sum.

“Making after-tax contributions to super, which could come from your personal savings, transferring personal investments or an inheritance, is one effective way to minimise tax.

“This financial year the maximum personal after-tax contribution is $150,000; however, if you are 65 or under you can contribute up to $450,000 over a three-year period.

“This allows you to make substantial contributions to super and build your retirement savings. But remember. While this is a real bonus, it’s critical not exceed the after-tax contributions caps because there can be tax penalties as high as 46.5%.

“Remember, too, that from 1 July 2014, the after-tax contributions cap increases to $180,000. This means if you can trigger the bring-forward rule that a total of $540,000 can be contributed over the fixed three-year period.”

Colley says it’s important for anyone aged 60 and above to note that the maximum tax deductible contribution cap is $35,000.

“These contributions include amounts you make as salary sacrifice, the Superannuation Guarantee or, if you qualify, personal deductible contributions. If you want to maximise your contributions before 30 June, make sure you talk to your accountant, tax agent or professional adviser so that your salary sacrifice agreement with your employer allows the maximum to be salary sacrificed.

“If you are 65 or older you will need to meet a work test to contribute to super in most cases. You will need to work for at least 40 hours during 30 consecutive days at any time during the financial year to make tax deductible and non-deductible contributions to super.”

Colley says don’t forget that once you reach 60, all lump sums from all superannuation funds, with some exceptions for government funds, are tax free.

“However, before age 60 any lump sums that include a taxable component can be taxable. The taxable component includes the tax deductible contributions plus any income that has accumulated in your superannuation benefit. No tax is payable on taxable amounts of up to $180,000, in total, you receive before age 60. This amount is indexed annually.

“If you are eligible to draw amounts from superannuation you may like to defer receiving the amount until after reaching age 60 or until a later financial year when you may end up paying a lower rate of tax.

Finally, as the clock counts down to 30 June, make sure that you get the timing right to ensure:
– You maximise the tax benefits from contributions to superannuation;
– You make sure you meet the pension rules correctly;
– That income and deductions for your SMSF are made to the best advantage.