With only about four weeks left until the end of this financial year, now's a good time to check your superannuation options.
Those options may include getting more money into your super fund account before the 30 June deadline.
But make sure you're aware of the various rules around doing this, including the maximum amounts you can contribute and the consequences of exceeding the annual limits.
Also, leave enough time for your super fund to process any personal contributions you make so they're recorded in your account before 30 June.
Concessional contributions are the payments made into your super fund that are concessionally taxed at a rate of 15 per cent instead of your normal marginal tax rate.
You're able to have up to $27,500 per financial year in concessional contributions deposited into your super account, including the payments made by your employer plus any extra personal contributions you make.
If you're currently below the annual limit you could make one or more personal contributions into your super account before 30 June.
This can be done either from your pre-tax salary via a salary-sacrifice arrangement through your employer, or using your after-tax money.
If you use after-tax money you may be able to claim a tax deduction in your next tax return. However you must complete an Australian Tax Office form advising your super fund that you intend to claim a tax deduction and also receive an acknowledgement from the fund.
Be aware though that if you exceed the total annual limit of $27,500 at 30 June you may need to pay additional tax.
To avoid exceeding the annual limit it's important to add up what your employer has contributed during the year and then calculate your concessional contributions gap.
The gap is the maximum amount of personal concessional contributions you can make before 30 June.
If you do exceed the allowed concessional contributions limit the ATO will apply a 15 per cent tax offset to account for the contributions tax already paid by your super fund.
Then you can elect to withdraw up to 85 per cent of your excess concessional contributions from your super fund to help pay your income tax liability.
If you don't elect to release your excess concessional contributions these will count as non-concessional contributions (see Make non-concessional contributions below).
You may have another option to avoid having to pay any excess tax if you exceed the $27,500 concessional contribution limit.
That depends on whether you've used up your maximum non-concessional contributions in previous years.
In 2018-19 the Federal Government introduced rules allowing people to roll over their unused concessional contributions for up to five financial years.
In other words, if $20,000 in concessional contributions were made into your account in 2020-21, you may be able to take advantage of your unused $7,500 gap from last financial year and roll it over into your 2021-22 contributions.
A condition around being able to do this is that your total super balance at the end of the last financial year must have been less than $500,000.
You can view and manage your concessional contributions and carry-forward concessional contributions by accessing the ATO's online services by logging in through the MyGov website.
Non-concessional contributions are after-tax personal contributions you make into your super fund, which can't be claimed as a tax deduction.
They're completely separate from your annual concessional contributions and are subject to their own annual limits.
Typically, non-concessional contributions are made using the proceeds from larger asset sales such as from a home or investment property. But there's no minimum non-concessional contribution amount.
The non-concessional contributions limit is currently $110,000 each financial year. However, under what's known as the “three-year pull-forward rule”, you can make a $330,000 non-concessional contribution in one financial year.
You're then unable to make further non-concessional contributions for the next three financial years.
If you have more than $330,000 to contribute in total, you could make use of the annual $110,000 limit before 30 June. Then, from 1 July, you could use the three-year pull-forward rule to contribute up to another $330,000.
The main advantage of making non-concessional contributions is to have more of your money inside the superannuation system, where earnings from investments before age 60 are taxed at just 15 per cent.
After age 60, if you access your super as a pension income stream, your investment earnings and the payments you receive are tax free.
First introduced in the 2018-19 financial year, the “downsizer measure” has provided an opportunity for individuals 65 years and older to add up to $300,000, and couples up to $600,000, into their super from the proceeds of their principal place of residence.
The eligibility age is due to drop to 60 from 1 July this year, and the Morrison Government has pledged to lower it even further to age 55 if re-elected.
A downsizer contribution forms part of the tax-free component in your super fund. It can be made in addition to non-concessional super contributions and doesn't count towards your personal super contribution limit.
It can also be made even if you have a total super balance of more than $1.7 million.
Ultimately, however, any downsizer contribution you make will count towards your tax-free transfer balance limit when you move into pension phase at retirement.
There are a range of conditions around downsizer contributions, and it's prudent to check these on the ATO website.
You or your spouse must have owned your home for 10 years or more prior to the sale, with your ownership calculated from the date of settlement when you bought your home.
There's also a strict definition of what constitutes a home. It must be in Australia and can't be a caravan, houseboat, or a mobile home.
You're unable to use the downsizer scheme to deposit funds from the sale of an investment property. These can only be done through a non-concessional (tax-paid) super contribution.
A downsizer super contribution must be made within 90 days after you receive the proceeds of your home sale. The ATO will allow for a longer period due to circumstances beyond your control.
If you're unsure about your super options before 30 June and need some advice, consider consulting a licensed financial adviser.
17 May, 2022
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