Personal Super Contribution Checklist

Written by Michelle Bromley CFP®, Director – Strategy & Advice

When devising a super contribution strategy, Prime’s Private Client Advisers must research the client’s personal and financial circumstances, and consider the super contribution rules to ensure that our recommendations are in the client’s best interest and can be implemented.

The key steps to ensuring a robust personal super contributions strategy are summarised below.

Eligibility

  • Generally, to make personal contributions the client must:
    • Be aged between 18 – 64; OR
    • Be aged 65 – 74 and met the ‘Work Test’; OR
    • Be age 65 or 66 and met the ‘Work Test Exemption’.
  • The client must have worked in gainful employment for at least 40 hours in a period of 30 consecutive days to meet the ‘Work Test’, before making personal contributions.
  • The client must have met the ‘Work Test’ last year and had less than $300,000 in super on the previous 30 June to meet the once-only ‘Work Test Exemption’.

Total Superannuation Balance

A number of superannuation measures are impacted by the client’s Total Superannuation Balance (TSB) at 30 June of the previous year.

  • If their TSB was $1.6 million or more, there is no eligibility to:
    • Make non-concessional contributions
    • Receive Government co-contribution
    • Where the spouse’s TSB was over $1.6 million, receive spouse contribution tax offset
  • If the TSB exceeds $1.4 million the amount they can contribute under the ‘Bring-forward Rule’ (see below) is restricted.
  • If the TSB equals $500,000 or more, they cannot carry-forward unused amounts of concessional contribution cap for up to 5 years (see below).
  • If the TSB equals $300,000 or more, they are not eligible to use the Work Test Exemption
  • Clients can find out their 30 June total super balance by creating a my.gov.au account and linking their ATO file using their Tax File Number. Their tax adviser should also be able to view this information in the ATO portal.

Non-concessional Contributions & Bring-forward Amounts

Personal contributions are counted as ‘Non-concessional Contributions’ except for any amount claimed as a tax deduction in the client’s income tax return. The non-concessional cap is:

  • An annual cap of $100,000; OR
  • Those under age 65 on 1 July can bring-forward an additional two years cap to contribute up to $300,000.
  • For those under age 65 and with more than $300,000 to contribute, a common strategy involves making a $100,000 contribution before 30 June and then up to $300,000 from 1 July.

Concessional Contributions Cap & Carry-forward Amounts

A personal contribution claimed a tax deduction is classified as a ‘concessional contribution’.

The general concessional contributions cap is $25,000pa but individuals with a TSB at the prior 30 June less than $500,000 can access any unused concessional contribution cap amounts accruing from 1 July 2018 onwards, for up to 5 financial years to make larger contributions.

  • Did they use their full concessional cap since 1 July 2018?
  • Do they have sufficient taxable income to offset with a larger tax deduction?
  • Should they make the contribution this year or next? Consider:
    • Is their TSB on 30 June of the current financial year likely to exceed $500,000? If so, contribute before 30 June.
    • If not, will their taxable income next year shift upwards into the next tax bracket? Should they defer making the contribution into July, to get a larger tax deduction next year?

Timing of the Contributions

Contributions are not formally made until the capital of the super fund is increased. Timing of contributions is important to ensure they are applied against the contributions caps and can be deducted in the intended year.

  • Personal contributions made by EFT or BPay should be made by around 24 June 2020 to be counted against the 2020 contribution caps.
  • Contributions that arrive at the super fund from 1 July are counted against the contribution caps and are deductible by client in the financial year that the contribution arrived at the fund, even where action to make the contribution happened in the previous financial year.

Procedure for claiming the tax deduction

To claim the tax deduction for personal contributions the client must:

  • Have enough taxable income to offset with a deduction
  • Make the personal contribution to a complying super fund
  • Submit a valid deduction notice to the fund trustee
  • Receive a letter from the fund trustee acknowledging receipt of the notice
  • Include the tax deduction in their tax return for the year in which the contribution was made

Tips

  • When making concessional and non-concessional contributions at the same time, separate the ‘concessional’ and ‘non-concessional’ amounts into two separate transactions to show the client’s intentions in a clearer way in case something goes wrong.
  • Don’t miss the cut-off for lodging the deduction notice. The notice MUST be lodged and the letter of acknowledgement received before the earlier of the day the tax return is lodged for the financial year in which the contribution was made or 30 June the following financial year.
  • The deduction notice must also be provided before withdrawing part of the contribution or rollover to retirement phase. Most withdrawal and rollover forms include a deduction notice.
  • If the super fund rejects the deduction notice or the client doesn’t receive back the letter acknowledging receipt of the valid deduction notice, the deduction CAN’T BE CLAIMED.
  • The client shouldn’t claim a tax deduction for a personal super contribution that would reduce their taxable income below their tax-free threshold. They might end up paying 15% contribution tax on money that would have been tax-free in their pocket!
  • A deduction for a personal super contribution can only reduce taxable income to nil. It cannot create or add to a loss, and the ATO will deny any part of the deduction for a personal super contribution that would otherwise result in a loss.
  • That means the client’s concessional cap might not be $25,000 – in fact, if they don’t earn any taxable income then they can’t make personal concessional contributions.

Implications of it Going Wrong

Maximising contributions up to the available caps is one of the most common strategies we use in wealth management; however, we’ve had a few recent cases where clients didn’t complete all steps in their strategy and the ATO issued an excess non-concessional contribution assessment.

The implications of receiving such an assessment include:

  • The ATO amending the client’s tax return for the year in which the excess contribution was made
  • Inclusion of a notional earnings amount in the amended tax return with tax applied at the client’s marginal tax rate less a 15% tax offset
  • Withdrawal of the excess non-concessional contribution plus 85% of the notional earnings amount from their remaining superannuation interests

Thankfully, in each case the issue was the client had not actually claimed the personal contribution as a tax deduction in their income tax return. An amended return needs to be submitted to fix the issue.

It is important to note that, while the super fund now reports to the ATO the receipt of a personal contribution and subsequently the information contained on the deduction notice, the ATO will not consider the contribution is concessional unless the client actually claims the deduction in their tax return.

Prime can work alongside you, as the client’s accountant, to ensure that their strategy is devised and implemented in accordance with the client’s best interests. Should anything go wrong, as sometimes occurs, we will do our best to find out the source of the problem and try to get it rectified.

The information in this article contains general advice and is provided by Primestock Securities Ltd AFSL 239180. That advice has been prepared without taking your personal objectives, financial situation or needs into account. Before acting on this general advice, you should consider the appropriateness of it having regard to your personal objectives, financial situation and needs. You should obtain and read the Product Disclosure Statement (PDS) before making any decision to acquire any financial product referred to in this article. Please refer to the FSG (primefinancial.com.au/fsg) for contact information and information about remuneration and associations with product issuers. This information should not be relied upon as a substitute for professional advice, and we encourage you to seek specific advice from your professional adviser before making a decision on the matters discussed in this article. Information in this article is current at the date of this article, and we have no obligation to update or revise it as a result of any change in events, circumstances or conditions upon which it is based.

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