A Super Plan if you’re Self Employed (in business)

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 influence people to begin saving earlier have diminished as a result of the reduced amounts you can contribute to super in any one year tax effectively of <$25,000> per annum <see rates for updates to thresholds>. 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 <using a TRIS>. You can also start to withdraw your super as a pension to supplement your income while working at the same time, how flexible is that !…..however not only 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 by making it more flexible to live, work and use super with 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 follows:

• 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 may suit you. 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. Remember however that gearing generally increases risk and should be taken into account in developing  your investment strategy
• Maximise your non deductible contributions <non concessional> into your super currently <$150,000> or <$450,000> (link to rates table) averaged over 3 years. Some ideas are as follows:
  1. Transfer available cash, or unexpected cash payouts you receive:
     1. from deceased estates
     2. redundancy
     3. and your lucky enough any prizes, lotteries, etc
  2. Transfer investments such as:
     1. shares,
     2. business real property
• Maximise your deductible contributions <concessional contributions> – into your super currently <$25,000 – check rates table update>.
• <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.
• Selling your business? make sure to take advantage of the following tax saving ideas:
  1. <15 year exemption> – pay no tax on proceeds from sale of business if you were carrying on business of over 15 years up to a life time cap of <$1,355,000-check rates table update> (2011 CPI indexed): and
  2. <retirement exemption> – pay no tax up to the same life time cap of <$1,155,000-check rates table update>
• Consider distributing trust business profits to super – your situation may make this viable, especially if your under funded in your super, see <ATO-Link>
• A Bankrupt ? – then make use of any money owing to you as a termination payment and pay it into super and pay no tax. <Also consider genuine redundancy> .
• Avoid Div7A Loans – maximise super to reduce your income (distributable surplus) in your business to nil.
• Consider accessing the pension before 60 –  if the pension minimum payment is small it might be ok, otherwise maybe better to wait till ABP available and the 15% rebate? Accordingly consider using only a portion of the accumulated interest account or a tax free portion to start your pension if you have multiple accounts for example.
• 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.
• If your over 55, draw a lump sum now from your Super – but caution! It’s still better (usually) to wait to 60, but it does depend on the amount in your super and you personal taxable circumstances.

60 couldn’t be any better! <Retire> and you can now withdraw your superannuation tax free whilst in <pension phase> having met a condition of release. If you haven’t met a condition of release such as retiring, then wait until you are 65.

However remember there are a now some constraints to be aware of in the near future such as (1) 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 you can just choose how to receive it, 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:
  1. If you have a pre1983 portion – then consider <re starting the pension> and boost your tax free pension!
  2. 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.
  3. Be careful employing this strategy as you could reduce the tax free portion by mistake..more on this soon………….
• 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:
  1. Transfer available cash, or unexpected cash payouts you receive:
     1. from deceased estates
     2. redundancy
     3. and your lucky enough any prizes, lotteries, etc
  2. Transfer investments such as:
     1. shares,
     2. business real property
  3. Read more on this topic (link topic here)
• Want to draw an income stream? If so you have two options:
  1. Draw a pension by satisfying the following conditions
     1. Formally <Retire> which means at the time you draw a pension from the SMSF you are not working and have formally retired;
     2. or……
• 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 in-fact 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 Corporate Beneficiary and pay only 30% tax. Well there may be reasons why this doesn’t work for you, take this example:
  1. 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 Individual 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.
  2. If you have revenue losses in the SMSF even more reason to consider this.
• Is the market in growth or decline phase –
• Contribution splitting – 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.
• 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 commence before so a <separate superannuation interest> is formed. Then a second 100% tax free pension can be commenced from the non concessional contribution.
• 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 as at the last date of update of this website, proposed rules such as contributions ceasing once members account balances reach <$500K>,  for more on Proposed 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.

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