As we edge closer to the End of the Financial Year, the window is closing for making tax deductible superannuation contributions. The ultimate goal to build a substantial nest egg under the most tax efficient manner. Eventually transforming it into a tax free income stream to support your lifestyle in retirement.
What was started in the 90s by Paul Keating as a straight forward compulsory saving scheme has now grown to be an intricate and complex system. The average person struggles to understand the nuances of it and it often leads to heightened stress as the financial year approaches.
In this post, I would like to remind you some of the key moves you need to make before 30th June to maximise tax deduction and bolster your super balance.
1. Superannuation Contributions – last minute rush
Concessional contributions (CC): Concessional contributions are tax deductible. The concessional tax treatment of 15% will be applied to these contributions when paid to the super fund as opposed to your marginal tax rate. For FY2023-24, the annual cap for concessional contribution is $27,500.
Check with your super fund how much you are eligible to contribute this year and how much your employer has contributed on your behalf through Super Guarantee and Salary Sacrifice.
Please speak to your financial adviser regarding how to use concessional contributions strategy before the 30th June to potentially reduce your tax bill by thounsands.
Non-concessional contributions (NCC): NCC are generally made using after-tax savings. The contribution attracts 0% tax when paid into the super fund. The annual contribution cap is $110,000 for FY2023-24. From 1st July 2024, the NCC cap will be increased to $120,000.
Additionally, if you are under 75, you may be able to bring forward next two years of contributions, allowing you to contribute up to $360,000 in FY2024 under the bring-forward rule.
However, your Total Super Balance has to be under a certain threshold before you can make eligible NCC. Please check with your financial adviser on strategies to boost your super balance and maximise the tax-free component of your Super.
2. Minimum Pension Payment: It’s your duty.
Upon meeting certain criterias to release your super benefit, you can commence the Account Based Pension using your super savings. As unbelievable as it sounds, all the investment returns on the assets that support your Account Based Pension are tax exempted, so are the pension payments you receive.
The catch is that you will have to meet the Minimum Drawdown requirement based on your age. This amount is a percentage of the account balance at the beginning of the financial year. The table below outlines the Minimum Drawdown percentage factor based on your age and the percentage increase as a person gets older.
Age | 2023–2024 onwards |
Under 65 | 4.0% |
65–74 | 5.0% |
75–79 | 6.0% |
80–84 | 7.0% |
85–89 | 9.0% |
90–94 | 11.0% |
95 or more | 14.0% |
If you haven’t withdrawn enough pension throughout this financial year to satisfy the minimum drawdown, you can make a lump sum withdrawal from the income stream by the end of the financial year.
The consequences of not meeting the minimum drawdown requirements for the financial year include losing the tax-exempt status of your Account Based Pension, and penalties and compliance actions from the ATO against you.
Schedule a meeting with your financial adviser to review your pension strategy and ensure all compliance requirements are met.
3. Termination of SMSF: Close the final chapter in time
A Self Managed Superannuation Fund can be a great vehicle to grow your nest egg, but there may come a time when it is no longer an appropriate structure for some clients and hence it will be advantageous to terminate the SMSF.
Winding down an SMSF is an intricate process and it takes as long as setting one up if not longer. The key is to plan ahead with your financial adviser and your accountant to make sure the trustees (in many cases, you) follow the correct procedures to wind it down before financial year end to avoid paying another year of the annual supervisory levy to the ATO, as well as all the administrative costs, even if there are no assets left in the SMSF.
You might need some professional advice and assistance to help you with this task. Here I have summarised below some key tasks you need from your financial adviser and other professionals:
Professional | Help you to… |
Financial Adviser | Provide financial advice and assistance on winding up your SMSF, including how existing benefits should be paid, the recommendation of superannuation products, and the sale or transfer of assets. |
Accountant | Help you prepare financial accounts and lodge your SMSF annual return and Transfer balance account report. |
Auditor | Examine your fund’s financial statements and assess its overall compliance with the super law. |
Actuaries | Provide an actuarial certificate if required where your fund is paying a pension. |
Most importantly, if you have a corporate trustee for your SMSF, you should apply to ASIC for a voluntary deregistration. Do it at least two weeks before your annual review due date to avoid paying the annual review fee.
Once an SMSF is wound up, it cannot be reactivated. However, talk to your financial adviser about other alternatives like super wrap to keep your assets staying in the super environment whilst having the flexibility with your investments.
Don't sweat...
Yes, there are many more actions you can take before the EOFY such as prepaying your deductible loans, prepaying your income protection premium, and considering your capital gain’s tax positions.
However, a wise friend once told me to remember just two things: “One: Don’t sweat the small stuff. Two: It’s all small stuff.” Missing the deadline to make a deductible contribution is not the be-all and end-all.
A qualified financial adviser should understand your circumstances well enough to help you stay focused on the big picture, which is growing your overall wealth over the long term. That’s the big stuff, and the rest, with all due respect, is really not worth your sweat.
Thanks Duncan. Great Summary