14 Jun Concessional Contributions
This week’s technical update will cover: Maximising Concessional Contributions To Super Over the Next Two Years.
In the May 2016 Federal budget it was proposed to change the law to limit concessional contributions to superannuation for everyone to $25,000 from 1 July, 2017.
As such, we it is recommended that members of a superannuation fund ensure they make the maximum contributions currently available. For example, members aged 50 and older can currently contribute $35,000 in concessional contributions each financial year. Members aged less than 50 years can contribute $30,00 until 1 July, 2017 assuming the proposed laws are passed by Parliament.
When is a contribution made?
Timing is very important as any contribution credited to your super fund account after 1 July, 2016 will count towards that financial year’s contribution cap level. This applies even if you or your employer completed an electronic contribution before 30 June, 2016. If your super fund bank account does not actually receive the funds until sometime after 1 July, 2016 then it is counted in that new financial year.
For example, if you wish to maximise your contributions next year you certainly do not want any of this year’s contribution cap level included in next year’s level because of a timing mistake. Let’s say an employer makes quarterly contributions to your fund, you do not want the last quarter’s payment to be credited to your fund any time after 1 July, 2016.
Even younger members aged less than 50 years of age with a limit of $30,000 should consider maximising their contribution levels over the next two years. One such way to do so is to consider salary sacrificing additional amounts to your super fund. It may be too late to salary sacrifice this financial year but it is a strategy worth considering for the next financial year.
Furthermore, if you might be eligible for a bonus next financial year you could consider putting in place an agreement allowing you the option of having some of the bonus paid as a superannuation contribution instead of salary in the new financial year.
Self Employed Fund Members Have Another Option.
An option for the self employed is to make an in specie contribution by transferring listed shares or managed funds to their SMSF as a concessional contribution. However, all the paperwork such as completion of an off- market share transfer form must be dated and provided to the relevant registry prior to 1 July, 2016 for this financial year.
Another important Budget change
It was also announced in the budget that from 1 July, 2017 anyone with a transition to retirement Income Stream (TRIS) would lose the tax exemption on income generated on assets underpinning a TRIS. In addition, you will not be able to elect for payments to be taxed as lump sums from 1 July, 2017.
As such, there are some planning opportunities in this area for older people who are able to commence a TRIS before 1 July, 2017.
Make the most of the last two financial years of higher concessional contribution levels by ensuring all contributions are credited to your superannuation account in the correct financial year.