Personal Contributions for Self Employed
Self employed individuals are entitled to claim a tax deduction for superannuation contributions in their 2008 individual tax returns if they comply with a number of rules, as stated below.
If you claim a deduction in your 2008 individual income tax return for superannuation contributions, you need to:
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Ensure you have advised the fund in writing of your intent to claim a deduction and the amount you intend to claim.
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Have an acknowledgement from your SMSF that they have received your notice to claim a deduction before lodging your individual tax return.
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Make sure you complete item D13 (Personal superannuation contributions) in the Supplementary section of your individual tax return.
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Check with your accountant you are eligible to claim a tax deduction.
Contribution Limits
Concessional = tax deductible contributions
Non-Concessional = non tax deductible contributions
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Age of member
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Concessional?
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Non-Concessional?
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Under 18
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No: unless employment or business income
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Yes: $150,000pa, bring forward allowed
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Between 18 and 50
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Yes: limited to $50,000pa
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Yes: $150,000pa, bring forward allowed
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Between 50 and 65
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Yes: limited to $100,000pa
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Yes: $150,000pa, bring forward allowed
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Between 65 and 75
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If work test not met: No
If work test met: Yes limited to $100,000pa
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If work test not met: No
If work test met: Yes, limited to $150,000pa
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Over age 75
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No
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No
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Contribution Strategy
A strategy to reduce tax on superannuation income streams and/or death benefits
What is the re-contribution strategy?
The objective of the re-contribution strategy is to maximise the tax free component of a superannuation income stream and/or superannuation death benefit.
To achieve this, the re-contribution strategy focuses on the tax effective withdrawal of taxable components with the intention of contributing these benefits back into superannuation as a non-concessional contribution.
Why use the recontribution strategy?
Superannuation income streams are taxed whilst an individual is under age 60. The recontibutions strategy reduces any tax payable by increasing the tax free component of the income stream. The flow on effect is to increase the tax free component of any potential death benefit paid from the income stream.
Individuals over age 60 do not pay tax on superannuation income streams from a taxed source. For individuals aged 60 to 75, the recontribution strategy provides significant estate planning benefits. It works by maximising the tax free component of an individual’s superannuation benefits (in accumulation or pension phase), which has the effect of maximising the tax free component of any potential benefit paid on death. This is important if the beneficiary receiving the death benefit is a non-dependant for tax purposes as the balance of the benefit is subject to tax.
Therefore, generally the recontribution strategy applies to individuals who are:
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Preservation age (at present age 55) and intend to commence a superannuation pension prior to age 60,
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Aged 60 to 75, who wish to protect their superannuation benefits from tax in the event that they are paid to non-tax dependants (eg. Independent adult children) on death.
It’s all in the name – Re-contribution strategy
Before contemplating the re-contributions strategy, remember to check the individual’s ability to withdraw their superannuation benefits and the ability to contribute these funds back into superannuation (ie. Re-contributions).
Make sure that the following issues are addressed:
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What is the preservation status of the benefits and if preserved or restricted non-preserved, can a condition of release be satisfied in order to make withdrawals.
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Is there anything in the trust deed of the super fund that may restrict access? If yes, can these benefits be rolled over to another fund in accordance with portability legislation to overcome this restriction?
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Can a superannuation contribution be made? – refer to contribution limits above.
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The superannuation contribution (re-contribution) will be preserved. Can a condition of release be satisfied in respect of the new contribution, including the commencement of a non-commutable income stream (where necessary)?
How do you apply the re-contribution strategy?
Maximising tax free component of a superannuation pension for individuals who can access their superannuation benefits at age 55, a pension will be taxable for up to 5 years (until they reach age 60).
The re-contribution strategy to maximise the tax free component of a pension on without incurring tax on the withdrawal.
If the above sounds beneficial to you please discuss with your accountant.
Accessing Benefits
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Age of Member
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Tax?
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Pension?
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Lump Sum?
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Between preservation age and 60
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Yes
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If met condition of release – minimum withdrawal 4%, no maximum.
If no condition of release met – minimum withdrawal 4%, maximum withdrawal 10%
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If met condition of release – yes, no limit on withdrawal
If no condition of release met – no limp sum withdrawal available
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Between 60 and 65
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No
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If met condition of release – minimum withdrawal 4%, no maximum
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If met condition of release – yes, no limit on withdrawal
If no condition of release met – no limp sum withdrawal available
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Above age 65
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No
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Yes – minimum limit 5%, no maximum
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Yes – no restrictions
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Budget Changes
Much
Ado
About Nothing? At least from an SMSF perspective
What is in the budget for SMSFs
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In short no changes.
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In particular: no changes to super gearing/instalment warrant arrangements, post age 60 super benefits are still tax free, earnings on pension assets still tax free and $450,000 contribution “bring forward” still applies.
What is not in the budget for SMSFs?
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The governance review of SMSFs was not mentioned. This review is progressing and any changes in the regulation of SMSFs will be announced later.
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The changes arising from general “root and branch” review of the Australian Tax System will not be announced until 2009 or later
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No mention of increasing the compulsory super guarantee rate from the current 9%.
Some minor matter which may affect SMSFs and member
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The ATO will operate a super contribution clearing house for employers;
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The clearing house will be free for employers with less than 20 employees, and for other employers a fee will be charged; and
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Means testing of certain welfare payments will treat “salary sacrifice” employer contributions as income of the member.
What else is happening?
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The Federal Government has previously announced that discrimination against same sex couples will be removed from areas of federal responsibility such as superannuation and tax concessions for superannuation.
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First Home Saver Accounts – will be introduced. However, the government has previously indicated that SMSFs will not be able to offer these accounts (though the balances from these accounts, if not used for housing purposes, can be rolled into super funds including SMSFs).
If you have any questions about these items please contact us at Macquarie Partners.
