Tag Archive: super

1. Last Minute Tax Savings Before 30 June

   June 16, 2014 8:29 pm Comments Off on Last Minute Tax Savings Before 30 June

   June 30 falls on a Monday this year, which given bank timings, really means that Friday 27^th should be what you consider the deadline for this year…  If you’re keen on saving some tax just before the deadline, here’s some Super ways to do it!

   Pre-Tax Contributions (Personal Deductions and Salary Sacrificing)

   If cashflow permits, the most tax effective means of saving for most people in higher income brackets is to reduce total taxable income AND pay the lower 15% contributions tax on the way into the Super environment.

   Of course, given the age at which you can then access Super is somewhere between 55 and 60, the closer you are to this number, the more attractive an option it seems.

   But the government does limit how much of a good thing you can have by imposing “Contribution Caps”.  So to work out how much you can contribute this year, do these 2 things:

   – You’ll need to know what your employer has already contributed on your behalf.  If they are paying standard Superannuation Guarantee Contributions (SGC), it should be 9.25% of your total salary including bonuses, up to a maximum of $17,774.80. But it is best to check your latest Pay Slip or Superannuation Online portal if you have one. Once you know this amount, subtract it from the below “Caps” and that is how much you can still contribute up to. Note the age thresholds and caps change for next year, so for more details see our Post Budget Ready Reckoner

   Year	Aged under 59 @ 1/7/13	Aged 59 and over @ 1/7/13
   2013-14 (now)	$25,000	$35,000

   – You can also use this calculator provided by the Australian Securities & Investment Commission (ASIC) to work out how best to allocate any excess cashflow that you have, and what tax the additional contributions will save you.

   

   If you are self employed, June is the most common time to assess cashflow and make the contribution, bearing in mind that in order to claim the contribution (to be tax deductible) any income received as an employee (being “overall assessable income PLUS super contributions (ex SGC) PLUS reportable fringe benefits”) needs to be less than 10% of your total assessable income for the year.

   If you’re employed, you may find it difficult to forego a large amount of salary, or get your employer to help you out at this late stage, but you should consider monthly amounts for 2015 while you’re thinking about it!

   After-Tax Contributions (Non-Concessional Contributions)

   The government also limits how much Super you can contribute after tax, which has meant that the days of leaving savings outside of super until the last minute are all but gone.  For 2013/14, the caps are the same:

   Year	Limit per year*	Over 3 years (referred to as “bring forward rule”)**
   2013-14	$150,000	$450,000

   The 3 year “bring forward rule” means that you can effectively contribute 3 years’ worth of contributions today, and then not contribute any more for 3 years.  This can be done anytime, but many people leave it until the last minute before retirement and then realise just how good the tax savings are!  If you’re near 65 and/or retiring, timing becomes critical and somewhat complicated:

   1. Once you get to age 65, you need to meet a work test of 40 hours or more in a 30 day period in order to make a contribution and can only contribute the annual amount each year ie $150,000
   2. Therefore if you’re under 65 and no longer working you may want to contribute $150,000 per year and then use the 3 year rule opportunity as close to age 65 as possible
   3. Once you reach age 75 no further contributions can be accepted by a super fund unless they are the super guarantee amounts ie 9.25% of salary

   Here’s is an illustration of how to get as much into super before age 65 to maximise tax free income in retirement.  It’s all about not using the “3 year bring forward rule” too early.

    

   

   To complicate matters further, next year the Non-Concessional Caps actually increase, and so where possible, you would hold off using the “3 year bring forward rule” until the 2014-15 tax year to take advantage of the extra $90,000.

   Year	Limit per year*	Over 3 years (referred to as “bring forward rule”)**
   2013-14	$150,000	$450,000
   2014-15	$180,000	$540,000

    Use next year’s Caps to offset this year’s Tax Liabilities

   Although not commonly understood individuals or employers can actually contribute beyond this year’s concessional cap, claim a tax deduction this year, but have the super fund allocate the second contribution (which must be made in June as a separate deposit) to next year’s cap prior to 28 July.  It’s done by holding the portion to be allocated to the next financial year in a contribution reserve account on the basis it has not been allocated to a specific member.  If the contribution is a “member concessional contribution” they need to complete a Notice of Intent to Claim a Tax Deduction in order to claim this second contribution in the year it was actually funded.  This strategy can be used to offset significant tax liabilities that fall this year, such as the capital gains tax on a business or property investment.

   

   The above case assumes the client is aged over 59 this financial year, therefore accessing the $35,000 Cap for both years.  See the Post Budget Ready Reckoner for the increases next year for those aged over 49.

   Off Market Transactions

   Contributions can also be made using “in-specie contributions” or transfers of physical assets without selling down.  Although the transaction still triggers Capital Gains Tax, you may be able to avoid a tax liability if your Marginal Tax Rate is nil (because you are in pension phase), or you are able to claim a personal tax deduction on contributions (because you are self employed).

   Tips and Traps:

   – There are restrictions on which assets you can transfer in this way (for example, Listed Shares but not Unlisted Shares, Business Real Property but not Residential Property)

   – You’ll need to be able to determine a market value of the asset being transferred to ensure that it fits within the contribution caps

   – The paperwork trail needs to be implemented correctly as the auditor will likely need to check for dates of the asset transfers matching valuations

   Exempt Current Pension Income Deduction

   Income derived from SMSFs in Pension phase are exempt from paying income tax.  However to ensure the SMSF is entitled to the exemption you must:

   • Check that you’ve met the required minimum pension payments for the year
   • Re-value all assets to their appropriate market value at year end

   If cashflow is an issue in meeting minimum pension requirements, consider whether a “lump sum in-specie payment” of an asset might work.  Even though you can’t actually call the transaction a pension payment itself, new rules now allow a lump sum to be counted towards the minimum pension payments for the year.  Although it is a “workaround”, this can be helpful if you have artwork or other collectibles you want to remove from the super fund and the pension you draw is more than you need. You will need to get an independent valuation of the asset.

   If you need any help getting organised for 27^th June, contact Danielle or Vanessa as soon as possible.  It’s all better in your pocket than the tax offices’!

2. What Tax Deductions can your SMSF Make?

   7:44 pm Comments Off on What Tax Deductions can your SMSF Make?

   Whether or not expenses are deductible is largely about common sense.  If the investment is allowable under the Superannuation Industry Supervision (SIS) Act, or the cost is genuine in running your fund, then chances are, it is a deductible expense.  It’s actually as much about remembering to record such expenses so that you can make the claim.

   You can get a comprehensive list from the ATO, but here’s a list of the most common that you should be ensuring that you are retaining records for and claiming, that is assuming you are in Accumulation phase and therefore paying tax!

   • Bank Charges
   • Valuation and storage costs of collectible assets (as long as income producing)
   • Depreciation on plant and equipment
   • Interest on investment loans
   • Actuarial costs (relating to pension funds)
   • Accountancy/Greenlight Fees
   • Audit Fees
   • Trust Deed Updates
   • Insurance Premiums
   • Investment adviser fees
   • Subscriptions for membership that assist you to run your fund such as Research Fees, Education Programs
   • Fines
   • Costs in connection with the calculation and payment of benefits to members, eg some Greenlight Consultancy Fees, medical costs in assessing invalidity claims
   • A range of other Property related deductions – see below

   Tips and Traps:

   1. Make sure the invoice is made out to the Super Fund
   2. Wherever possible, pay the expense directly from the Super Fund bank account
   3. Watch paying expenses from your own bank account or company bank account as they could be deemed a loan to your fund, or a contribution.

   Property Related Deductions

   First up, you need to consider whether an expense is in fact a deductible expense against the taxable income of the fund, or a capital cost.  Capital costs include things like:

   • In-ground swimming poos, saunas, spas
   • Major work renovations
   • Replacement of plumbing and gas fittings
   • Garage doors, skylights

   These things won’t be tax deductions per se, but need to be added to the cost base for valuation purposes, and can be depreciated.

   However where costs are incurred in the process of earning an income, these expenses should be recorded and claimed as per above.  Examples include:

   • Advertising
   • Body Corporate Fees, Rates,
   • Energy and Water Bills (only if paid by you rather than the tenant)
   • Land tax
   • Cleaning, mowing, gardening, repairs and maintenance
   • Insurances
   • Property Management Fees
   • Security patrol fees
   • Travel expenses when inspecting the property (though you need to apportion any personal travel costs)
   • Stationery, postage, telephone

   Additionally, items that are furniture, fixture or fittings (not part of the building) that are part of the income production, these can be depreciated over 1-20 years.

   For information about how to make the administration of your fund and its expenses more streamlined throughout the year, keep an eye out for some upcoming Administration Tips on the website or chat to Danielle or Vanessa today!

3. Superannuation largely untouched in “tough measures” budget

   May 27, 2014 2:27 pm Comments Off on Superannuation largely untouched in “tough measures” budget

   Nearly 2 weeks after the Budget announcements, the news is ablaze with protests and opinions on the likelihood of the measures being legislated. But from a Superannuation perspective, it’s largely business as usual.

   Here’s our take:

   1. The government saw reason and has announced measures to allow Excess Non-Concessional Contributions to be withdrawn (along with any associated earnings) where a Non-Concessional Contribution Cap (eg $150,000 or $450,000 over 3 years) has been breached inadvertently from 1 July 2013.  This administrative issue has had the potential to bite plenty of people, and though SMSF members will benefit most from this change, public offer funds are still scrambling with how they’ll practically implement the relevant calculations if they need to.
   2. The mandated Superannuation Guarantee Contribution will still move to 9.5% in July before being frozen for 4 years.  The targeted 12% is set to kick in 2022 instead of 2019, but with at least 3 elections between now and then, there’s no guarantees on that.  Our Post Budget Ready Reckoner has the current and proposed increases laid out.
   3. And the most talked about item is that some self-funded retirees may exceed the Income Test for the Commonwealth Seniors Health Card.  Superannuation Pension Payments (that are untaxed for tax purposes) will be included in the Income Test for the first time from January 2015.  Current adjusted taxable income thresholds are:

   • $50,000 (singles)
   • $80,000 (couples, combined), or
   • $100,000 (couples, combined, for couples separated by illness or respite care).

   Note that all existing account based pensions in place prior to this date will be grandfathered.  Talk to us today if you’re over or nearing 65 and don’t have one in place. 

   For existing card holders, the Government will achieve savings of $1.1b over 5 years by ceasing the Seniors Supplement for holders of the CSHC (currently $876.20 per annum for singles and $1,320.80 combined for couples).  The Clean Energy Supplement will remain in place, as will a range of concessional benefits including lower co-payments for medicines on the Pharmaceutical Benefits Scheme and access to the lower threshold for the extended Medicare Safety Net.  The last payment will be made in June 2014.

   4. Though not specifically Super related, the Age Pension age was already set to increase to 67 by 1 July 2023.  Now, from 1 July 2025, the Age Pension qualifying age will continue to rise by six months every two years, from the qualifying age of 67 years that will apply by that time, to gradually reach a qualifying age of 70 years by 1 July 2035.  People born before 1 July 1958 will not be affected by this change. Also, there has been no change to the preservation age for accessing preserved superannuation benefits.  See our Post Budget Ready Reckoner for Age Pension eligibility dates.
   5. And in case you thought the Budget Repair Levy may apply to tax free income derived from a Superannuation Pension, it doesn’t.  However it has captured non-arms length income derived from SMSF Investments such as discretionary trust income, private company dividends or non-arms length transactions with related parties, increasing it from 45% to 47%.

   For a full super, tax and social security budget run-down, refer to Bendzulla’s Budget Report.

   Other important Super Strategies to consider right now

   Changes to the Concessional Contribution Caps were introduced prior to Budget Night and will come into effect on 1 July 2014.

   Year	Aged under 59 @ 1/7/13	Aged 59 and over @ 1/7/13
   2013-14 (now)	$25,000	$35,000

    

   Year	Aged under 49 @ 1/7/14	Aged 49 and over @ 1/7/14
   2014-15	$30,000	$35,000

   But the big ticket item here is if you’re considering a Non-Concessional Contribution to get money into Superannuation right now, make sure you hold off until 1 July this year where possible.  The increased caps will enable you to contribute up to $90,000 extra by holding off.

   Year	Limit per year*	Over 3 years (referred to as “bring forward rule”)**
   2013-14	$150,000	$450,000
   2014-15	$180,000	$540,000

   *Annual limits applicable where under age 65, plus 65-74 where 40 hours in 30 day work test is met
   **Bring forward rule only applicable if age under 65So for now, it’s more about using Superannuation effectively to reduce your tax and ensure a well-funded lifestyle for the future.

   Talk to us today about a range of strategies to suit you  — Call now on 1300 368 775

4. Real Money Lessons

   May 22, 2014 10:23 am Comments Off on Real Money Lessons

   This idea came from Fred, who’s 75 going on 25 by the way! A career entrepreneur, his passion and energy isn’t slowing any time soon! Neither too are his ideas for leaving his family well prepared for the future, especially his grandchildren.

   Fred spent his lifetime building businesses, which like many people has had its fair share of boom and bust successes and failures. But he credits his father’s early advice on savings for where he is today. Fred has well in excess of $2m to fund every last lifestyle wish and medical requirement, so “comfortable” is how he describes his financial position.

   And so it was mid last year, having been one of the first to entrust Greenlight to manage his SMSF pension accounts, he asked the question

   “Why couldn’t I set up multiple bank and trading accounts in my SMSF, and let my grandchildren manage some of their inheritance today? It would give me an avenue and a vehicle to teach them what I can see they need to be taught – patience, responsibility and accountability.”

   Fred wishes he’d taught his own children more, but like most Father’s was busy… And his focus was on ensuring he could provide his kids with the best education, great holidays, a nice house and yard, the list goes on.

   But with more time now, and opportunity to reflect on changes in today’s pace of life, he’s desperate to spend time with his grandchildren, teaching them the things he most valued about his own upbringing.

   And the idea seriously got the attention of the whole extended family!

   How it works:

   • Fred’s 100% in retirement, and all of his super monies are fully accessible, tax free.
   • He can spend unlimited amounts (though this strategy might be reigned in slightly for people trying to access the Seniors Card post 1/1/15 after Budget Announcements!)
   • He can’t contribute any more to super, so the kids have to work within the constraints of holding money in shares vs cash (incl Term Deposits), and expenditure
   • Fred can monitor every transaction through Greenlight Online using datafeeds provided by the bank and trading accounts
   • Greenlight’s fees are fixed, so any increase in trading activity has no impact on Fred’s costs
   • Fred retains 100% actual control of the money within his SMSF

   And almost a year on, the scoreboard has become somewhat of a family talking point – OK, competition! Each of the 5 grandchildren, ages ranging 16 to 28, started with $25,000 in cash on 1st August 2013. The total values range from $29,336 to $18,943. Only 1 grandchild has spent any of the money, while the rest are largely focused on cash rates and sharemarket movements. Most interesting is that 2 of the grandchildren in particular, have taken a FAR greater interest in both their super and saving than they have ever indicated before, so it’s been the start of something pretty amazing.

   Talk to us more about their progress, or setting up your own arrangements for children or grandchildren. Though every family is different, and there’s some tips and traps to be mindful of, something like this, might just work for you too!

5. Beware! The ATO’s eyes are open… and they’re on a mission!

   March 6, 2014 3:36 pm Comments Off on Beware! The ATO’s eyes are open… and they’re on a mission!

   Barbara was on a mission of her own, until the ATO slowed things down markedly for her.  She had decided to use part of her superannuation assets to invest in a Private Company opportunity, and so had engaged Greenlight to set up an SMSF.

   All was on target until she received notice that her brand new SMSF would be one of the 15,100 SMSF establishments this year that would be randomly audited by the ATO (up from 9000 in 2012-13).  That in itself was not a problem, and from our perspective a positive that such action was being taken by the ATO.  A crackdown on unscrupulous operators and spruikers can only be a positive outcome for everyone!

   Fast forward 4 months, and as we sit currently, her fund has been suspended until October 2014, still another 8 months away.  Why?

   As part of the audit, the ATO reviewed all of her personal and business affairs and uncovered overdue personal returns and business lodgements.  She was given 1 month to rectify the outstanding items, and did that.  But while overseas for 5 weeks over the Christmas break, a further request and deadline was missed, and…. Well you know the punch line.

   And the consequences are devastating.  Not only did Barb miss out on the investment opportunity completely, her intended rollovers are now sitting in cash in her incumbent retail fund – earning practically nothing in the current environment.

   Furthermore, she has been forced to rethink her intended investment strategy for the Fund – a distressing outcome for someone who thought they had their retirement future mapped out.

   Needless to say, a lesson for anyone currently setting up a fund, or thinking about it… The house needs to be in order.  Call it a by-product or even unintended consequence of the crack-down, but a stark reminder that the ATO has no tolerance for tardiness or oversight, especially when it comes to who is entitled to run their own SMSF!