2016 Superannuation year end planning

Current as of June 2016

 

With the end of another financial year looming, now is the time to review the last minute strategies to make sure that you are maximising your contributions and managing your pension payment limits correctly.

FOLLOWING ARE SOME TIPS TO HELP YOU MAXIMISE YOUR CONTRIBUTIONS

The 2016 Federal Budget announced an immediate introduction of a $500,000 Lifetime Cap on Non-Concessional Contributions. Therefore:

  • from 7.30pm on 3 May 2016, individuals will be limited to this lifetime cap which will replace the current non-concessional cap of $180,000 per annum (or $540,000 if the 2 year bring forward rule has been triggered).
  • this cap takes into account all non-concessional contributions made on or after
    1 July 2007, however any contributions made before the commencement date cannot result in an excess.
  Concessional Cap
(before tax contributions)
Non-Concessional Cap
(after-tax contributions)
48 years old (or younger)
as at 30 June 2015
$30,000 $180,000
49 years old (or older)
as at 30 June 2015
$35,000 $500,000 lifetime cap as of
7.30pm on 3 May 2016

Multiple Superannuation Funds

Remember that it is the total of your concessional contributions made to all superannuation funds which is counted against your concessional contribution cap.

Work test and contributions for persons aged 65 to 74 years of age

If you are aged 65 or more at the time of the contribution, the work test must be met before making the contribution.

The work test requires that a member has been gainfully employed for at least 40 hours in 30 consecutive days in the financial year.

Contributions may be accepted up to 28 days after the month in which the member turns 75.

Contribution Splitting

This is a great way of equalising super balances for a couple or accessing super monies earlier if one spouse is a few years older than the other.

You may split up to 85% of your concessional contributions (up to your concessional contribution cap) to your spouse provided he/she is younger than their perseveration age or aged between their preservation age and 65 years, and not retired.

Government Co-contribution

If your adjusted income is less than $50,454 you may like to take advantage of the Government co-contribution by making an after tax (non-concessional) super contribution before 30 June. For every dollar of contributions that are eligible, the Government contributes 50 cents to your superannuation up to a maximum government co-contribution of $500.

FOLLOWING ARE SOME TIPS ON DRAWING PENSION PAYMENTS

If you are taking an Account Based Pension (“ABP”) from your super fund make sure you have taken the minimum pension payment for this financial year. Should you be taking a Transition to Retirement Pension (“TTR”), make sure you have not exceeded the 10% limit.

Since there is no upper limit on how much can be withdrawn from an ABP, there are no issues in wanting to draw more to cover any “extra” payments.

Age Minimum Pension Amount –
Percentage of account balance at 1 July 2015
Younger than 65 4%
65 – 74 5%
75 – 79 6%
80 – 84 7%
85 – 89 9%
90 – 94 11%
95 or older 14%

Pension payments after the age of 60 are tax free

Whether you are taking a TTR or ABP from your SMSF, any pension payments taken after you are age 60 are entirely tax-free. So if you can hold-off taking that next pension payment it is definitely worth doing.

Non-Arm’s Length Limited Recourse Borrowing Arrangements (LRBAs) – Extension to 31 Jan 2017

The ATO has announced an extension on non-arm’s length LRBA rectifications from 30 June 2016 to 31 January 2017.

Since the release of the safe harbour provisions in April 2016, the need for greater clarity for the rectification process has been highlighted and the ATO has said by 30 September 2016, they will provide greater information and illustrative examples to assist trustees.

Therefore, the ATO will not select an SMSF for an income tax review purely because it has an LRBA for the 2014-15 income years and prior, provided that the SMSF trustee ensures that any LRBA that their fund has is on terms consistent with an arm’s length dealing, or is alternatively brought to an end, by 31 January 2017.

However, funds are still required to ensure the LRBA terms are consistent with an arm’s length dealing by 31 January 2017 so payments of principal and interest for the year ended 30 June 2016 must still be made.

If you have any questions in regards to the above tips and traps, don’t hesitate to get in touch with your Client Manager before 30 June.

 

DISCLAIMER
This newsletter has been produced by Stanley & Williamson as a service to its clients and associates. The information contained in the newsletter is of general comment only and is not intended to be advice on any particular matter. Before acting on any areas contained in this newsletter, it is imperative you seek specific advice relating to your particular circumstances. Liability limited by a scheme approved under Professional Standards legislation.