A lot of people leave their preparation for the end of the financial year until it is too late. If you feel that your finances could do with a shake-up before June 30, there are many tax-effective strategies that you and your financial planner can implement now to ensure that the end of June runs as smoothly as possible. This update focuses on Superannuation and retirement planning and is the second instalment of a three part series which aims to provide you with an insight into what strategies you may wish to consider in the lead up to 30 June.

Salary sacrifice into superannuation

Superannuation can be a tax-effective investment. If you’re an employee, you could look at contributing to superannuation through salary sacrifice, thereby reducing your taxable income. In the long term, salary sacrificing has many benefits as it not only helps to increase your superannuation savings but could also reduce the amount of tax you pay. You could even salary sacrifice your annual bonus into superannuation, but this needs to be arranged in advance with your employer.

If you decide to salary sacrifice into superannuation, this amount is taken from your pre-tax salary. Your employer will automatically deduct it from your salary and deposit it directly into your superannuation fund. As a result, your contribution will be taxed at a maximum rate of 15 per cent (up to 30 per cent for individuals with income over $300,000), as opposed to your marginal rate, which may be as high as 49.0 per cent.

Additionally, the reduced salary amount that you actually take home would then become your assessable income for tax purposes. This may enable you to move down a tax bracket, reducing your amount of total tax payable.
Concessional contributions, or those made with pre-tax money, are currently limited to $30,000 per person per year. If you were 49 or over on 30 June 2014, this cap increases to $35,000. You should consider speaking to your financial adviser about how this may impact your retirement planning strategy.

Transition to retirement

One of the common tax-effective retirement planning strategies for those aged 55 or over is to transition to retirement (TtR). A TtR strategy offers opportunities for wealth accumulation and tax efficiency, especially for those aged over 60 or over, who can access a tax-free income stream. There are two components to the TtR strategy:

• You can commence a non-commutable account-based pension and receive between four and ten per cent of the account balance as an income stream.
• You can make contributions into superannuation so that, including the pension, the overall after tax living expenses remain unchanged.

TtR strategies are complex in nature and it is best discussed with a financial adviser to determine whether or not it is appropriate for you.

Have you turned 65 during this financial year?

If you have turned 65 this year, it is your last opportunity for you to contribute up to $540,000 before 30 June 2015 by using the three year bring forward non-concessional contribution cap. Making personal after-tax contributions into super can provide your superannuation a boost. This is complex and you will need to talk to your financial adviser about the contribution rules.

Get your Government co-contribution

If you earn less than $34,488 (including reportable fringe benefits) and make an after tax contribution to super of $1,000, you will be eligible for the maximum super co-contribution of $500 from the Government. The co-contribution amount reduces by 3.33 cents for every dollar of income over $34,488 and phases out completely once you earn $49,488. The ATO uses information on your income tax return and contribution information from your super fund to determine your eligibility. Self-employed contributors may also be eligible for the Government co-contribution until age 71. Just remember that you need to have personal non-concessional contribution in your account that you have not claimed as a tax deduction.

The new low income superannuation contribution

Individuals earning up to $35,087 receive compensation for contribution tax on their concessional contributions up to $500 which is paid by the Government as a low income super contribution. This ensures individuals will be no worse off when receiving or making these types of contributions, than if they received the amount as income. One of the best things about the low income superannuation contribution is its simplicity as you don’t need to make a claim for it. All you have to do is lodge your tax return and the ATO does the rest. It’s that easy but it is advisable to speak to a financial adviser about the best contribution mix for your personal situation.

Make a personal deductible contribution

Self-employed, non-working and retirees may find themselves in a situation where they can significantly boost their retirement savings, as well as reducing their taxable income by making a personal deductible contribution. The simplification of and changes to personal deductible contribution rules is one such opportunity. The caps allow deductible contributions which are currently limited to $30,000 per person per year. If you were 49 or over on 30 June 2014, this cap increases to $35,000. Note: If you are self-employed, non-working and retired, you need to ensure that you will satisfy the eligibility criteria and you make your personal deductible contribution into superannuation before 30 June.

Spouse superannuation contributions

If your spouse is on a low income, you could receive a tax offset for making a contribution to your spouse’s superannuation fund, as long as their assessable income (including reportable fringe benefits) is less than $13,800. However, to claim the maximum offset of $540, your spouse must earn $10,800 or less and you need to contribute $3,000 to their superannuation in the same financial year. Because it’s a tax offset, you’ll make a direct saving against your income tax liability.

If you would like to discuss any of the above points with one of the Adviser fp team, please CLICK HERE and one of our Financial Planners will be in touch with you within 24-hours.

This information is general advice only and does not take into account your financial circumstances, needs and objectives. Before making any decision based on this document, you should assess your own circumstances or seek advice from a financial planner and seek tax advice from a registered tax agent. Information is current at the date of issue and may change. This information and certain references, where indicated, are taken from sources believed to be accurate and correct. To the extent permitted by the Law, Lonsdale, its representatives, officers and employees accept no liability for any person that relies upon the information contained herein.