by Abra Chowdhury
The end of the financial year is the perfect time to review your clients’ super to ensure they are taking advantage of every opportunity to maximise their retirement savings. There are a number of opportunities to consider before hitting 30 June.
For clients who are 65 or older, they have a unique opportunity to boost their superannuation savings if they are considering downsizing their current residence. Where they have lived in their home for 10 years or more, each member of a couple can make up to $300,000 of non-concessional contributions without meeting the work test. The downsizer contribution can only be used once, so it is important to maximise the benefit available.
Spouse Super Contribution Tax Offset
For clients with a spouse who is a low or middle-income earner, they can contribute to the spouse’s superannuation and receive a tax offset. Where the receiving spouse earns $37,000 or less, they will qualify for the full tax offset while the offset shades out progressively up to a maximum income of $40,000.
The Government co-contribution of up to $500 is still available for taxpayers with income less than $39,837 who make a $1,000 non-concessional contribution. The available co-contribution progressively reduces to nil once income exceeds $54,837. The client must be eligible to make contributions and have a total super balance below $1.6 million.
Salary sacrifice remains an effective way to boost super and save for retirement. The cost of each $1 sacrificed is equal to (1 x (1 – the client’s marginal tax rate)). Excluding clients who are subject to Div293 (see the ATO’s explainer), the net benefit in each case is $0.85 per $1, at an after tax cost starting at $0.79 (21% MTR) reducing to $0.53 (47% MTR). With the increase in the concessional contribution cap to $27,500 from 1 July 2021, salary sacrifice may be worthwhile revisiting with your clients.
Personal Concessional Contributions
Some clients may be in a position to top up their super with a personal contribution which they can then claim as a tax deduction. Anyone can now make personal concessional contributions, provided they are eligible to contribute. They may also be able to take advantage of any carried forward concessional contribution cap from the past 3 years. Refer to our concessional contribution flowchart for further information.
Some clients may benefit from contribution splitting in a number of circumstances, including: increasing the benefit of a non-working spouse and managing their own Total Super Balance. To be eligible the receiving spouse must be under preservation age or be less than age 65 and not retired. Up to 85% of eligible contributions can be split. The splitting request can be lodged with the fund at any time during the financial year following the year in which the contributions were made.
Even with the reduced minimums for the 2021 financial year, it is advisable to ensure your clients have met their minimum pension requirements for the year. Where the minimums are not met, the pension is deemed to have ceased on the 1st July 2020 and the fund will not be eligible to claim ECPI. You may also consider commencing retirement phase pensions for clients who are eligible on 1st June, as they will not be required to take a minimum payment but will qualify for a month of ECPI. That decision may need to weighed against the increased transfer balance cap that will apply from 1 July.
The increase in caps from 1st July have been well publicised and need to be taken into consideration with any actions that may be taken before 30th June. This includes triggering the bring-forward contribution rules and commencing new retirement phase pensions.
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