The crisp, fresh and damp smell of freshly cut grass teases his senses. The awkward, cramped and rather unorthodox composure of his overweight stature
is on display for those who dare to endure the painstaking 5 hours of his company. The swift whisk of graphite hurtling through the air is felt before
the sharp crack echoes for all within social distancing limits to hear. The seemingly small projectile zooms forward before taking a right angle and
is heard bouncing and ricocheting from the shadowy, heavily condensed and entangled surrounding tree lines and shrubs. With a sigh and comment of “I
think I lifted my head again” the hollowed soul trudges forward hoping to find his third missing ball for the round (did I mention that he is only
on hole two?)
Yes, thanks to Dan Andrews, I can finally experience this once again. Luckily however, the search for tax concessions and deductions is nowhere near as challenging.
We have compiled a list of our top superannuation tax strategies for you, appropriate for all life stages and incomes. Please take the time to read this; apologies that it’s a long one, however it should not take you as long to read as it does for me to get through the 18 holes.
Remember that as always, we are your trusted caddy when it comes to advice on which club to use. As this communication is general information only and not specific to your individual circumstances, please ensure you contact us for a quick chat to run through the layout of the greens before you just tap, tap, tap, tap it in, à la Happy Gilmore…
Superannuation & the facts about limits:
Super provides excellent tax benefits and concessions designed to help Australians contribute to their retirement savings throughout their working life. You can contribute as much as you like, but there are limits to the tax concessions. These limits are known as contribution caps and if you contribute more than your cap, you might incur additional tax.
The cap amount and how much extra tax you are required to pay depends on your age and whether the contributions you make are:
- Before-tax (“concessional”) contributions, or
- After-tax (“non-concessional”) contributions.
Before-tax (concessional) contributions
Before-tax contributions (including contributions made by your employer under the Superannuation Guarantee Scheme) are taxed at a rate of 15%, which is much lower than income tax for most people.
If you earn over $250,000 for any one financial year, your superannuation contributions are taxed at 30% - still considerably lower than the highest marginal tax rate.
Currently, the concessional contributions cap for everyone is $25,000 per year.
From the 2019-20 financial year, individuals with a total superannuation balance of less than $500,000 on 30 June (prior to the start of the financial year) can make contributions in excess of their $25,000 annual cap, accessing any unused limits from the 2018-19 financial year onwards. This catch up provision can be carried forward for up to a maximum of 5 years.
This is the first financial year in which the eligibility for the practical use of this strategy applies.
After-tax (non-concessional) contributions
After-tax contributions are additional contributions you make from your take-home pay. This means you’ve already paid tax on this income. However, any investment earnings from these contributions are taxed at 15%, lower than the rate you would pay on investment earnings outside super.
The current cap on after-tax contributions is:
- $100,000 every year for everyone.
If you exceed your cap, the excess amount will attract a penalty tax of 47% on top of the income tax you’ve already paid. The non-concessional contributions reduce to $0 for any given financial year where the individual held a total superannuation balance of $1.6M or more on 30 June prior to the beginning of that financial year.
If you are under 65 at the beginning of the financial year, you can bring forward another two years of after-tax contributions and contribute up to $300,000 in one financial year. This means you will not be able to make further after tax-contributions for another two years without being subject to additional tax obligations.
If you are under 65 and contribute more than $100,000 in one financial year, you will automatically trigger the bring-forward rule. The bring-forward rule may be worth considering if you are selling assets and transferring the proceeds into your super, if you want to invest the proceeds from an inheritance, or if you simply want to advance your retirement savings prior to retirement.
The number of years able to be brought forward in a given financial year is determined by your total superannuation balance (TSB) on 30 June prior to the start of that financial year as follows:
- If your TSB is less than $1.4M, you can use the full three-year bring forward provisions to make $300k contribution.
- If your TSB is between $1.4M & $1.5M, you can only bring forward one additional year of caps, to make $200k contribution.
- If your TSB is between $1.5M & $1.6M, no bring forward is available and you can only contribute $100k.
- Above $1.6M TSB, the cap reduces to $0 and contributions of this type cannot be made.
Feeling like you are single-handedly covering Australia’s debt? Strategies for those with high incomes
If you are having a big year of earnings, you may consider pre-paying income protection policies, pre-paying interest on investment loans, pre-paying financial advice fees or other general deductible expenses annually in advance. However, these strategies need full consideration about what the following year is likely to bring; if you bring next years deductions into this year and are once again faced with the prospect of propping up our nation, you may be throwing your clubs in anger next year as they’ll no longer be available.
For those of you that are likely to earn over the $180,000 mark, you will be in the highest income tax bracket, with income tax payable of $54,097 plus 45c for every $1 over the $180,000 figure, not including the 2% Medicare Levy.
You will have the full $25,000 concessional contribution limit available to you to allocate money towards your retirement savings and limit the personal taxation. 15% contributions tax is certainly better than 47% including Medicare Levy. If you were working for wages, your employer has likely already paid a reasonable amount towards this limit and care needs to be exercised to ensure that you do not exceed your contributions cap. If for example you were earning $225,000, your employer has likely already paid at least $21,375 (9.5% via Superannuation Guarantee Contributions) which leaves only a small margin before exceeding the $25,000 limit.
However, if you’re self-employed and yet to consider contributions, you could reduce your income in the same example from the $225,000 to $200,000 and save $8,000 inclusive of Medicare Levy. Furthermore, if you had an account balance less than $500,000 on June 30, 2019, you could use the catch-up provisions on any unused concessional limits from the 2018-19 financial year.
For those earning over $250,000, superannuation contributions attract a further 15% on top of the existing 15% contributions rate. The 30% figure is still less than the marginal rate applicable to this income bracket, but it is likely that your employer is fully utilising your concessional contributions cap. If you have more than one employer, and the total sum of your contributions exceed $25,000 placing you into excess each year, you can ask one employer to cease paying the SG contributions and re-direct the funds back to you via salary.
In addition, you may be eligible to make a spouse contribution and receive a subsequent rebate of 18% up to a maximum of $540 if you have been the primary income earner and your spouse earns less than $40,000 per annum.
Before using these catch-up provisions, consider that they can carry forward for a maximum of 5 years. Provided your TSB is less than $500,000 on 30 June immediately prior to the year in which you deploy catch-up provisions, you may wish to save this allowance, carrying it forward if you have an assets or assets that may be sold triggering capital gains tax in the next couple of years, and use it in that financial year in order to mitigate the tax when this occurs,
Rest assured, I am as excited about going through a round of golf having lost less than three balls for the day, as I am about the possibilities this new catch-up provision rule presents in terms of strategy-based planning.
Under the current tax rules, 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. Please note that while you contribute more than $3,000, you won’t receive the spouse contribution tax offset on anything above this amount.
If your spouse receives $37,000 or less in the total of assessable income, fringe benefits and employer super contributions, then you can access the maximum tax offset of $540, provided an after-tax contribution of at least $3,000 is made. The tax offset is then progressively reduced until the tax offset reaches zero for spouses who earn $40,000 or more in the total of assessable income, fringe benefits and employer super contributions in a year.
These reductions apply on a $1 impact for every $1 above the $37,000 threshold. As an example, if an eligible spouse was earning $38,500, then they income would only be eligible for 18% of $1,500 being $270 as the spouse contribution rebate. Rebates are better than deductions as they are deducted from your assessable income before tax is calculated, so it reduces your tax by the amount of the deduction, multiplied by your tax rate.
Having a year that is likely to result in very little to no income tax from an earnings perspective?
Low income super tax offset
If you earn $37,000 or less, you may be eligible for a low-income superannuation tax offset (LISTO) of up to $500 per year. The rebate works on your concessional contributions, (which relates to any employer contributions and contributions where you intend on claiming a tax deduction).
The rebate is 15% of the contributions and applies up to a maximum of $3,333. When these contributions are made either from your employer or from you directly (with the intent to claim a tax deduction), you would generally pay 15% contributions tax on the money, which means that your super fund only would only receive 85% of the contributed money.
However, this initiative is designed to help protect low income earners. For example, if you have earned $25,000 for the year and your employer has paid $2,375, you could contribute a further $958 to your fund, with the intent to claim a tax deduction. This would wash away the contributions tax and reduce your taxable earnings to $24,042 (a tax-savings of $182.02) and increase your long-term retirement savings.
If you are self-employed, likely to earn less than $37,000 for the year and are yet to make any contributions this financial year, you could take full advantage of this strategy, resulting in a saving of up to $633.27 in income tax.
If you earn less than $53,564 per year (before tax) and make an after-tax or non-concessional superannuation contribution, you may be eligible for a matching contribution from the government, called a co-contribution. The government will work out your entitlement when you lodge your tax return and if it is determined that you are eligible, the government will pay the co-contribution directly to your fund.
This applies to any contributions made in the after-tax format, which is unlike the strategy above, whereby the member was claiming a tax deduction. If the full $1,000 is contributed and the client’s income is less than $38,564 for the 2019-20 year, they will be eligible for the full entitlement of $500 from the government, who will credit the additional money directly into your super fund.
This is essentially a 50% return on your contribution with no risk.
For clients earning above the $38,564 amount, the Government will pay a reduced co-contribution on your $1,000 contribution up to the income limit of $53,564 for the 2019/2020 financial year, as per the table below.
Contributions made in the 2019-20 income year
|$38,564 or less||$500||$400||$250||$100|
|$53,564 or more||$0||$0||$0||$0|
Kuda Wealth Micro-Cap monopoly update
For those that have been following our blogs this year, we have been running a Micro-Cap Monopoly competition, whereby all clients and Facebook followers were provided a random micro-cap company at the start of the financial year. The client whose stock has the greatest performance percentage by 31 December will win a flight and accommodation voucher to the value of $2,500 or they can nominate a charity to which they would like that same monetary value allocated. This has just been for a little bit of fun and to shine some light on those companies that very rarely ever get their day in the sun when it comes to media coverage.
The top 5 people in the running for the voucher as of close of business 19/05/2020 are as follows:
1. David P - retains his seat at the top of the throne with his TBG Diagnostics Limited with a performance return since 01 January 2020 of 800%.
TBG Diagnostics Limited (TDL, formerly Progen Pharmaceuticals Limited) is a biotechnology company focused on the global molecular diagnostic industry and is involved in the development, manufacture and marketing of molecular diagnostic kits, instruments and services. With its research and development based in the US, Taiwan and China, TDL manufactures its products in its ISO13485 certified facilities in Xiamen, China serving the clinical labs of both hospitals and independent reference labs, blood centres and bone marrow registry labs around the world.
$10,000 Invested at the commencement of January 2020 would have a market value of $90,000 today; an amazing return when you consider the market has endured the impacts of coronavirus.
2. Travis H - is sitting in second position with his allocation of Skin Elements Limited which has seen a performance return of 700% over the same period.
Skin Elements Limited (SKN) primarily focus on development, produce and sell natural and organic skin care products. The Company aims to provide consumers with quality skin care using all-natural and organic ingredients as an effective alternative to synthetic chemical-based products. The Company's vision is to promote organic and natural lifestyles and give consumers access to natural, organic sun care products. The Skin Elements formulas are a unique combination of cutting-edge science with all-natural ingredients.
Travis H has narrowed the gap on David P and with the volatility of this micro-cap space, this remains anyone’s game.
3. Sonja S - holds onto her position in the top 5 with her Auteco Minerals, which is up a lazy 400% for the Calendar year.
Auteco Minerals Ltd (AUT, formerly Monax Mining Limited) is an ASX listed Company with a focus on copper-gold nickel and diamonds on the highly prospective Gawler Carton, South Australia. Company has acquired a large tenement holding in the highly prospective and underexplored Fowler Domain in western South Australia.
4. Jenny K & David C - share 4th spot with their 300% returns coming from Riversgold Limited & Metalstech Limited respectively.
Riversgold Ltd (RGL) is an Australian based gold exploration and development company with projects in Australia and Alaska. The Company is currently undertaking exploration activities on the Kurnalpi Project (Western Australia) and planning for upcoming field programmes in Alaska and South Australia.
Metalstech Limited (MTC) is a pure-play lithium explorer company. The Company is focused on the exploration and development of the Cancet Lithium Project in Quebec, Canada and Bay Lake Cobalt Project in Ontario, Canada.
5. Grace G - rounds out 5th spot with the GO2 People and their return of 233%.
The GO2 People (GO2) provides vertically integrated recruitment and building services to industry throughout Australia.
Congratulations to those who made the Top 5 and good luck to all the remaining members for the Micro-Cap Monopoly competition. The volatility in this area ensures that fortunes that may shine upon you can be easily taken away.