Don’t leave it to late like so many people do and then try to find ways to get their money into super at the last minute. The problem is that too many people put off today that which can be done tomorrow. The Government’s attempt to force people to begin saving earlier have reduced the amounts you can contribute to super in any one year tax effectively up to <see threshold table> per annum. As a general guide we say start focusing on contributing to super as early as possible, but particularly after you turn 40.
Remember you can draw some money out tax free as early as 55 (depending on your preservation age). You can also withdraw your super as a pension to supplement your income while working at the same time, how flexible is that !…..however not can you do this, but you can also save tax by employing some strategies before commencing your pension and prior to re-commencing work. One thing the Tax Office have realised is that my making it more flexible to live, work and use super and providing tax incentives, then more people will contribute to super.
Remember one plan cannot suit all, so see your Accountant or Advisor in setting up a tax effective super plan for your particular situation. However as a general guide a checklist of what you should consider is:
- Emergency need to withdraw super now? – and can’t wait until 60, then make use of the tax free component currently <$160,000> (2010)<see rates for updates>.
- Gearing and increase your investment base – Since the government reduced the amount you can contribute to super, and if you are in a similar position to the person depicted in the table above, and don’t have enough super then this strategy should be considered. Recent changes made make if more attractive now take out a loan <instalment warrant loan/now bare trust non recourse loan arrangements> in your superfund to purchase residential, commercial property and shares.
- Maximise your non deductible contributions <non concessional> into your super, by contributing the annual amount allowed or use the three year bring forward rule and contribute three years in one, see our <rates table> for these latest contribution amounts. Some ideas are as follows:
- Transfer available cash, or unexpected cash payouts you receive:
- from deceased estates
- redundancy
- and your lucky enough any prizes, lotteries, etc
- Transfer investments such as:
- shares,
- business real property
- Maximise your deductible contributions <concessional contributions> – into your super currently <$25,000-check rates table this means ask your employer to salary sacrifice into super. Consider any impact on other entitlements such as centerlink benefits. Contributions can also be made by:
- <Make excess contributions> – above the cap where you have losses in your superfund, read more on <anti-deteriment strategies> and how this can make this strategy work.
- Preserve your tax free contributions – Consider setting up <Separate Super Accounts> to quarantine these tax free contributions for estate planning purposes.
- If your working part-time – and have investment income (dividends rental income) then see if you meet the <10% test> and maximise your tax deductible contributions into super. Remember changes introduced in the May 2016 Budget are set to remove this requirement.
- Insurance to boost your super – if you don’t have enough super then a insurance payout from super can greatly improve your super balance.
- Split your contributions with your spouse – consider splitting your contribution <click here> with your spouse and benefit from a more balanced super for pension payment purposes and or in the event of a divorce. You can split up to the lesser of the deductible (concessional) cap or 85% of the actual contribution made.
- Life benefit termination payment or genuine redundancy – check to see whether upon termination of our employment whether your payout can be contributed into your super without it using up your contribution caps, <see ATO-link>
- <Government co-contribution> – if your income is less than <$61,920> (in 2010) the government will match your contribution currently $1000 if income less than the current threshold of <$31,920> (2010).
- If your over 55 and you want to reduce your hours but can’t afford it? – consider drawing a pension and work part-time at the same time….now you can afford it….start a <TRIS> today. Changes introduced in May 2016 budget make this less effective than in previous years.
- Start a <TRIS> Draw money now from your Super – but caution! It’s still better (usually) to wait to draw a pension from 60 when you <Retire>, but it does depend on the amount in your super and you personal taxable circumstances.
- Start a <Pension> Great your 60 and it couldn’t be any better! you can now withdraw your superannuation tax free having met a condition of release such as <retiring>. However remember there are a now some constraints to be aware of in the near future such as meeting the <work test> from 65 years to carry on making contributions and <spouse contributions> cannot be accepted from 70. You cannot receive super contributions from 75 unless you choose to receive mandated employer super contributions. However you can opt out of receiving the mandated contributions from 75 and receive the money instead, see Superannuation Guarantee Administration Act 1992 (SGA s27(1)(a)).
- If you started a pension before 1.7.07 the here’s a couple of tips:
- If you have a pre1983 portion – then consider <re starting the pension> and boost your tax free pension!
- If you have an Accumulation pension, then consider <converting to an account based pension> that has smaller minimum pension payments. particularly if you don’t need the current pension income your receiving.
- Be careful employing this strategy as you could reduce the tax free portion by mistake
- Boost your tax free portion or Claim a tax deduction by a <re-contribution strategy>– this means withdrawing the super tax free, making a non deductible contribution and then either a re-contributing and claiming a tax deduction! or equally as good back as a non concessional contribution making that part tax free and all future earnings from that portion also being tax free. Non deductible (non concessional contributions) limits are <$150,000> or <$450,000> (link to rates table) averaged over 3 years. Some ideas are as follows:
- Transfer available cash, or unexpected cash payouts you receive:
- from deceased estates
- redundancy
- and your lucky enough any prizes, lotteries, etc
- Transfer investments such as:
- shares,
- business real property
- Read more on this topic (link topic here)
- Want to draw an income stream? If so you have two options:
- Draw a pension by satisfying the following conditions
- Formally <Retire> which means at the time you draw a pension from the SMSF you are not working and have formally retired;
- or meet another <condition of release>; or
- Draw a <TRIS>
- Maximise your non deductible contributions <non concessional> into your super, by contributing the annual amount allowed or use the three year bring forward rule and contribute three years in one, see our <rates table> for these latest contribution amounts. Some ideas are as follows:
- Transfer available cash, or unexpected cash payouts you receive:
- from deceased estates
- redundancy
- and your lucky enough any prizes, lotteries, etc
- Transfer investments such as:
- shares
- business real property
- Gearing and increase your investment base – Since the government reduced the amount you can contribute to super, and if you are in a similar position to the person depicted in the table above, and don’t have enough super then this strategy should be considered. Recent changes made make if more attractive now take out a loan <bare trust/non recourse loan> in your superfund to purchase residential, commercial property and shares. Caution should be recommended with a gearing strategy in retirement due the inherent additional risk from debt.
- Paying more than the amount allowed to claim a tax deduction – <excess concessional contributions> Yes it seems strange doesn’t it but paying more than you are supposed to and being penalised may infact be a good strategy. You see if your already on the top income tax bracket then you may think why not distribute the excess profit from your business to a bucket company and pay only 30% tax. Well there may be reasons why this doesn’t work for you, take this example:
- The money in the company at the end of the day will need to come out of the company if you wish to use it for personal purposes. When this happens you will end up paying the top tax rate if you continue to be on the top tax threshold <see tax rates>. Additionally income earned on these excess profit invested will be taxed at 30%. If your in this situation then making excess tax deductible contributions and paying 15% + 31.5% will be the same rate of tax being paid, however even though you have to pay it now rather than later, the income earned on this will be (1) at 15% and (2) will be tax free when you begin drawing a pension. This is a numbers exercise and a “what if” exercise but could save you thousands depending on your situation.
- If you have revenue losses in the SMSF even more reason, to
- Late in getting money into your Super? – you are not the first and won’t be the last, too many wait until its too late to get money into super. If your in this boat and need to put in a large amount as a non tax deductible contribution (non concessional) then consider…..whether a pension should commenced before so a <separate superannuation interest> is formed. Then a second 100% tax free pension can be commenced from the non concessional contribution.
- Want to reduce your hours but can’t afford it? – consider drawing a pension and work part-time at the same time….now you can afford it. ….start a pension today provided you meet a condition of release? Remember if your working, only when you have reached 65 do you meet the age condition of release and can start a pension. If you are under 65 and haven’t met any of the other conditions of release then you may still withdraw from your super but under a TRIS.
- Is the market in growth or decline phase –
- From 65 the bringing forward of the $150K non concessional contributions for three years (ie $450k) ceases & work test commences.
- From 75 contributions cease
- Consider the proposed or new rules click here.
Tax Rates, thresholds, caps, and any other quantitative numbers change by either CPI or enacted changes, we do not guarantee that the rates in these pages are current, we do attempt to update <Tax Rates & Info> however again make no guarantees, we suggest you contact your advisor before making any decisions. Please note our website terms of use.
Please note our website terms of use.
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