Superannuation is a highly tax effective environment, where income is taxed at a maximum tax rate of 15% and capital gains, where the asset has been held for over 12 months are only taxed at 10%. In circumstances where the fund is paying pensions to its members, both income and capital gains can be completely tax free.
Further, business and certain individuals may be entitled to a tax deduction for contributions made to complying superannuation funds. As a result, superannuation is a significant tax planning tool we use to assist clients minimise their tax and build a significant retirement asset.
So here is what you need to know about superannuation contributions:
Who can superannuation contributions be made for?
Superannuation funds can accept contributions for members who meet the following criteria:
- Under the age of 65; or
- Between the age of 65 and 75 years who satisfy the work test (at least 40 hours of work within 30 days); or
- Over the age of 75 and are only receiving mandated superannuation contributions (such as superannuation guarantee)
Claiming a deduction for superannuation contributions
Employers can claim a tax deduction for superannuation contributions made to complying superannuation funds on behalf of their employees. This includes mandated contributions such as the Superannuation Guarantee, and also additional or salary sacrificed superannuation contributions.
Individuals can also make concessional (tax deductible) contributions to superannuation providing they meet the Maximum earnings (10%) test. To meet the test, the individual’s income (including Reportable Employer Superannuation Contributions (RESC) and Reportable Fringe Benefits (RFB)) does not exceed 10% of their total assessable income (including RESC and RFB).
To prevent abuse of the deductions and concessional tax treatment available, the government has imposed limits on the amount of contributions that can be made to superannuation.
Concessional Contributions, which include employer contributions and personal deductible contributions are generally capped in the 2014 financial year at $25,000 for those aged under 59 on 30 June 2013 and at $35,000 for those aged 59 or over on 30 June 2013.
From 1 July 2014, the concessional contributions caps will increase to $30,000 for those under 49 on 30 June 2013 and $35,000 for those aged 49 over on 30 June 2014.
Non-Concessional Contributions, that is, after tax / non-taxable contributions are capped at $150,000 for the 2014 financial year. For those aged under 65 at any time during the finical year, they may bring forward an additional 2 years’ worth of non-concessional contributions (the bring-forward rule), providing they have not exceeded the non-concessional cap in the previous 2 financial years. This would enable the member to contribute up to $450,000 in the 2014 financial year.
If however you are looking to maximise your non concessional contributions, you may be best not to trigger the bring-forward rule in 2014. From 1 July 2014, the non-concessional superannuation cap will increase from $150,000 to $180,000, which means in the 2015 financial year you could contribute $540,000 if utilising the bring-forward rule. This, coupled with a $150,000 contribution in the 2014 financial year, could allow you to contribute $690,000 in non-concessional contributions in the next month.
Please note that exceeding the contribution caps will result in excess contributions tax, which can be quite costly, so use caution when making large contributions.
The superannuation guarantee is compulsory for all employers that all employers must make on behalf of their employees. The minimum amount payable is currently 9.25% the employees ‘ordinary time earnings’. Whilst you have until the 28 days after the end of the quarter to pay this amount into the employees superannuation fund, if you want to take advantage of the deduction in this financial year for your accrued liability, you should ensure that the payment is received by the fund prior to 30 June 2014.
Also important to note, is that the rate of superannuation guarantee payable is increasing to 9.5% from 1 July 2014. Therefore you should ensure that your accounting software is adjusted accordingly from to calculate the superannuation payable at the new rate from 1 July. The current government has also announced that it intends to then pause increases to the superannuation guarantee until 1 July 2018, when it will commence increasing at 0.5% per annum until it reached 12%.
Low income earners may be eligible for co contribution of up to $500 if the make non concessional contributions of up to $1000. The co-contribution will be reduced for those with adjusted taxable incomes exceeding $33,516 and will not be available if your adjusted taxable income exceeds $48,516.
Division 293 tax
From 1 July 2012, high income earners, that is, those whose adjusted taxable income exceeds $300,000 will pay an additional 15% tax on concessional contributions paid into a superannuation fund.