With the end of the financial year fast approaching, it’s time to undertake a final review of your super to ensure that you have maximised your tax and retirement benefits for the 2020-21 year.
What should you be considering in terms of superannuation prior to 30 June 2021?
1. Maximise super contributions
Ensure that you have maximised your annual concessional (tax deductible) and non-concessional (un-deducted or after-tax) super contributions. The following tables summarise the contribution caps for the current financial year and those for the following financial year, which will increase for the first time in 5 years.
This cap is inclusive of any 9.5% compulsory employer contributions made on your behalf (note this is set to increase to 10% from 1 July 2021).
Those earning more than $250,000 will pay an additional 15% contributions tax on their concessional contributions.
If you are aged 67 and over, you need to satisfy a work test of gainful (paid) employment of at least 40 hours in a consecutive 30-day period during the financial year in order to be eligible to contribute to superannuation.
Note, it is proposed from 1 July 2020, that concessional contributions work test required for those aged 67 to 74 will be abolished for those salary sacrificing. For those making personal concessional contributions, the work test will still apply.
If you are over age 75, only mandated or compulsory super guarantee contributions are permitted.
|65 to 74||$100,000||$110,000|
For those under age 65, the non-concessional contribution caps listed are based on the annual non-concessional cap (i.e. $100,000 for 2020/21 brought forward over 3 years and would only be applicable for those people that have not exceeded their annual non-concessional contribution cap in the prior 2 financial years.
If you are aged 67 and over, you need to satisfy a work test of gainful (paid) employment of at least 40 hours in a consecutive 30 day period during the financial year in order to be eligible to contribute to superannuation.
Note, it is proposed from 1 July 2022, that concessional contributions work test required for those aged 67 to 74 will be abolished.
If you are over age 75, non-concessional contributions are not permitted
Individuals with total superannuation balances of $1.6m or more on 1 July 2020 are not eligible to make non-concessional contributions to superannuation this financial year.
From 1 July 2019, individuals aged 67 to 74 years with total superannuation balances below $300,000 can make voluntary contributions to superannuation for up 12 months from the end of the financial year in which they last met the work test.
Note your super contribution will not be counted for this financial year unless the payment is received by your super fund prior to 30 June 2021. So, prepare to make final contributions by 26 June 2021 at the latest.
2. Review your salary sacrifice agreement
Review your salary sacrifice agreement to ensure that you have maximised your salary sacrifice superannuation contributions for the 2020-21 financial year. If you do not have an agreement in place, then consider establishing an agreement with your employer for the 2021-22 financial year. From 1 July 2021, your salary sacrifice agreement will need to take account that the super guarantee rate will increase from 9.5% to 10%.
3. Personal concessional contributions for employees and self-employed
Those self-employed, or only receiving investment income should consider making a personal concessional super contribution to reduce their taxable income. Employees are also eligible to make personal concessional contributions in addition to contributions made on their behalf by their employer, provided their total concessional contributions from all sources (including super guarantee) does not exceed $25,000.
If you are eligible to make a concessional contribution in which you are able to claim a tax deduction, then you need to ensure that you have notified your super fund in writing of your intention to claim a tax deduction and you should also ensure that you receive an acknowledgment of your intention from your super fund. Without the notice and acknowledgment, your claim for a tax deduction for your personal contributions will be invalid.
4. Carry-forward your concessional contributions cap
From 1 July 2018, you can roll forward any unused concessional contributions cap for five years (after which they expire). So, if you don’t use the full amount of your $25,000 concessional contributions cap in any year, you can always carry-forward the unused amount and take advantage of it up to five years later. This is provided your total super balance is less than $500,000 on 30 June of the previous financial year.
The 2019-20 year was the first financial year where you can access unused concessional contributions, carried forward from the 2018/2019 financial year.
For those with higher than usual income this year, this can be a useful strategy to offset this income provided they have unused cap available and are eligible to make the contribution.
5. Split your concessional contributions with your spouse
You can split up to 85% of your concessional contributions from a prior year with your spouse as long as they’re under their preservation age, or under 65. This may be a strategy where your spouse has a low super balance (must be less than $500,000 before the start of the financial year) or is closer to retirement.
Contribution splitting can only be done after the end of a financial year.
6. Make a “downsizer” contribution
If you are over age 65 and have sold your home, you may be eligible to make a once-off contribution of up to $300,000 (or $600,000 per couple).
For those eligible, there is no need to meet a contributions work test and the contribution is not subject to the prohibition on making additional non-concessional contributions where your total super balance is more than $1.6 million.
Note, it is proposed from 1 July 2022, that the age limit of eligibility will reduce from age 65 to age 60.
7. Make a spouse super contribution
You may be entitled to an income tax offset of up to $540 for superannuation contributions for the benefit of a lower income (under $40,000) or non-working spouse who is under age 75.
8. Access the Government co-contribution of up to $500
If you are under age 71, engaged in employment and your total income is less than $54,837, the government will co-contribute 50 cents for every $1 of any non-concessional (undeducted) super contributions that you make, up to a maximum of $500. This may be a useful strategy for low income working spouses or adult children working part-time.
9. Make a super contribution to save for your first home
Under the First Home Super Saver Scheme, voluntary contributions to your super fund may be withdrawn to help buy or build your first home. Under the scheme, you can withdraw up to $15,000 of eligible contributions made over a financial year or up to $30,000 in total for all years, plus an amount that represents deemed earnings. Non-concessional contributions can be withdrawn tax free. Concessional contributions and total earnings will be taxed at marginal tax rates with a tax offset of 30%.
Note, it is proposed from 1 July 2022, that the maximum releasable amount for the scheme will be increased from $30,000 to $50,000.
10. Consider starting a pension from superannuation
If you are over age 55, consider commencing a pension from your super fund. Under the current super rules, anyone who has reached “preservation age” (55 for those born before 1 July 1960), can start a “transition to retirement income stream” (TRIS) and draw up to a maximum of 10% of their account balance each year. This is irrespective of whether they continue to work or not. Many use this strategy to reduce their tax but more importantly, increase their contributions to superannuation whilst supplementing their reduced take-home pay with their pension withdrawal.
Alternatively, if you are over age 65, or if you are under age 65, but have retired since commencing the TRIS, or if you are between age 60 and 65 and changed jobs after age 60, then you may convert your TRIS to a “retirement phase pension”. The earnings on super funds paying retirement phase pensions are tax free up to the pension transfer balance cap (set at $1.6 million as at 1 July 2017 but will increase to $1.7 million from 1 July 2021).
11. Draw your minimum pension before year end
If you are already drawing a superannuation pension, please ensure that your fund has paid you the minimum pension before 30 June 2021. The minimum pension for the year is based on a percentage of your fund member balance as at 1 July 2020, or, if you started your pension during the year, the fund member balance at commencement pro-rata for part year. Due to economic effects of Covid-19, the Government reduced the minimum pension percentage factor by 50% for the 2019-20 and 2020-21 years as follows:
|Age||% of Account Balance |
(2020 – 21)
|% of Account Balance * |
(2021 – 22)
* The minimum pension percentage factor will resume to 100% from 1 July 2021
There is no maximum annual limit to your account-based pension, unless you are under age 65, still working and drawing a TRIS pension from your super fund, in which case the maximum annual limit is 10%.
12. Thinking about setting up an SMSF before year end?
If you are planning to set up an SMSF before year end, it may be better to defer the set up until after 30 June 2021, so as to avoid the fixed annual SMSF compliance costs that will apply regardless of how long the SMSF has been in operation.
Are you now ready to make a start on your end of financial year super planning checklist?