Superannuation Blogs DIYSuper

DIY trustees should ensure that they maximise the tax advantages on offer by making concessional contributions to their fund. The tax benefits vary, depending on individual tax circumstances and the scope available to make voluntary pretax contributions into superannuation.

Except in rare cases, concessional super contributions are worth considering only when marginal personal income tax rates exceed 15 per cent. The higher the marginal tax rate, the larger the tax benefits from redirecting personal income into a self-managed super fund as a concessional contribution.

What’s under the cap

This opportunity is available to all DIY members aged less than 65 or employed or self-employed up until the age of 75. In most cases, there is no point in claiming concessional super contributions in excess of the current annual limits or caps of $25,000 (for those under 50) per annum and $50,000 for other older taxpayers. These caps are comprehensive and monitored closely by the ATO. They encompass all employer contributions including the 9 per cent super guarantee and personal contributions claimed as a tax deduction under the unsupported taxpayer provisions.

Where taxpayers are members of more than one fund, the ATO calculations include the concessional contributions made to all funds in the relevant financial year. Special rules apply to the reporting of actual or notional employer contributions for members of defined benefit and constitutionally protected funds.

Where relevant, individuals will need to contact these funds for information about their concessional contribution reporting procedures.

Sense of urgency

There is some urgency for older members to maximise their concessional contributions. After July 1, 2012, the government has confirmed that taxpayers aged 50 and over with more than $500,000 in super will be subject to the lower $25,000 concessional contributions cap.

Especially close to tax-year-end, employees have only limited options to increase their concessional superannuation contributions. ATO rules only permit salary sacrifice super contributions that the employer has agreed to in advance of the contribution being paid in to the fund. This limits the amount of additional concessional super contributions to the total of wage and bonus income yet to be earned in the tax year.

Self-employed and other unsupported DIY members, defined under ATO rules as taxpayers receiving less than 10 per cent of the total of their assessable income, reportable fringe benefits and reportable employer super contributions (RESC) as an employee are more fortunate. These taxpayers can make unsupported concessional contributions at any time in instalments or as one lump sum before the end of the tax year. In addition to this flexibility in making their contribution, membership of a DIY fund provides an additional advantage to unsupported taxpayers. As long as they pay their contribution in to their fund before June 30, they can then (subject to certain time limits) subsequently even after the end of that tax year decide whether or not to claim a tax deduction for their contribution.

Lower than estimated

If a member’s taxable income turns out to be lower than estimated, the member can then decide how much of their contribution to claim as a tax deduction. The fund administrator will then record the balance of their contribution as a non-concessional contribution which is subject to a separate more generous contributions cap. This flexibility also assists unsupported taxpayers to avoid exceeding the annual concessional contributions cap.

Fund members receiving employer contributions do not have the same freedom in managing their concessional contributions.

For this reason members need to plan ahead to ensure that they do not exceed the annual contribution cap.

A personal concessional contribution provides an opportunity to reduce capital gains tax liability associated with the sale of an investment property or the transfer of shares into their SMSF.