As we approach the end of the 2020 financial year, it is important to consider some key ways to meet your financial goals whilst making the most of super, tax laws and Government benefits. We understand if this year is tougher than usual to utilise these measures such as topping up your super due the impact of COVID-19.
We are available to help guide you through this period with your EOFY or any other financial planning questions.
New for FY2020
Claiming a "catch up" concessional super contribution
The 2020 financial year is the first year you can make “catch up” contributions on any unused super contributions below the $25,000 concessional limit from the 2019 financial year. Essentially, the unused amount is carried forward, and added to, your $25,000 maximum concessional contribution limit for this financial year. These contributions are treated as concessional and generally able to have a tax deduction claimed. You can carry forward unused contributions for up to five consecutive years. Read further to see if you are eligible.
Am I eligible?
Your Total Super Balance must be less that $500,000
To be eligible, your Total Superannuation Balance (TSB) must be less than $500,000 at 30 June of 2019. This is assessed at 30 June of the prior year for each year in the rolling five-year period in which you intend to use the unused cap. Your TSB is basically the sum of all your superannuation interests including pensions (if any), maybe less some adjustments
You must have unused concessional contributions
The annual cap of $25,000 is currently applied to concessional contributions. You must have an unused amount in FY2019 from concessional contributions coming from these sources: mandatory employer contributions (SG), salary-sacrifice contributions and personal contributions for which you claimed a personal tax deduction.
You meet the contribution rules
Individuals aged 65 are generally eligible. Where you are aged between 65 and 74 you’ll need to meet the work test. (If you are aged between 65 years and 74years, you are exempt from meeting the work test in the financial year following the year you retire providing your TSB was below $500,000 on the prior 30 June.)
This strategy can be used for clients wanting to build their super balance who are expecting a high taxable income this financial year. It may be helpful to consider where income has increased, whether it’s from a work bonus, large capital gain, retirement payouts or large trust distribution.
If you’re a low or middle-income earner and make personal (after-tax) contributions to your super fund, the government may also make a contribution (called a co-contribution) up to a maximum amount of $500. This amount is tax free. The amount of government co-contribution you receive depends on your income and how much you contribute.
Firstly you should consider if your 2020FY income is within the following thresholds to qualify
If your total income is equal to or less than the lower threshold of $38,564 and you make personal contributions of $1,000 to your super account you will receive the maximum co-contribution of $500.
If your total income is between the two thresholds, your maximum entitlement will reduce progressively as your income rises. You will not receive any co-contribution if your income is equal to or greater than the higher threshold.
Income is measured as your assessable income plus Reportable Employer Superannuation Contributions & Reportable Fringe Benefits
Maximum Superannuation Contribution Base for 2019/2020 and 2020/2021 FY
The maximum super contribution base is used to determine the maximum limit on any individual employee’s earnings base for each quarter of any financial year. If your yearly income exceeds that of $221,080, Superannuation Guaranteed is required to be paid to that level only.
Income per quarter
Income per annum
Where you earn income from more than one source make sure you consider not being in breach of the concessional $25,000 cap. Talk to us about measures available to you for consideration.
Personal tax deductible contributions
Effective from 1st July 2017, individuals who receive income from employment are eligible to make personal tax deductible contributions without having to enter into a salary sacrifice arrangement. This personal contribution can be made in addition to the 9.5%pa superannuation guarantee your employer contributes on your behalf and you may be entitled to claim a personal tax deduction for it.
The $25,000 cap on concessional contributions applies to the combined amount from all employer contributions (9.5% superannuation guarantee, award contributions and salary sacrifice amounts) and any additional amount you contribute for which you claim a tax deduction.
If you intend to make a personal contribution and claim a tax deduction, it is important that you lodge a “notice of intention” from with the ATO. Speak to your accountant to check your tax deductibility.
You may be able to claim an 18% tax offset on super contributions up to $3,000 that you make on behalf of your non-working or low-income-earning partner. You can contribute more than $3,000, but you won’t receive the spouse contribution tax offset on anything above $3,000.
For FY2020, if your spouse receives $37,000 or less assessable income (including fringe benefits and employer super contributions), you can access up to $540 tax offset provided an after-tax contribution of at least $3,000 is made on behalf of your spouse. The tax offset is progressively reduced until the tax offset reaches zero for spouses earning $40,000 or more.
You can’t claim this tax offset if:
- Your spouse has exceeded their non-concessional contributions cap for the financial year
- Your spouse’s super balance is $1.6 million or more on 30 June 2019 where the contribution is made in the 2020 financial year.
A few things to remember:
- You and your spouse must both be Australian residents when the contributions are made
- The contribution must be paid into your spouse’s super fund or retirement savings account
- A tax deduction must not be claimed on the super contribution.
Before considering the above changes, you should consult your accountant for tax advice and your financial planner for specific personal advice.