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How to maximise your super contributions in the Accumulation phase

Tags Retirement Planning tax-news tax-tips
Category SMSF
changes-to-super-accumulation-phase

In the 2016 budget, the government made changes to the superannuation system that will change people’s focus and strategies going forward. We outlined some of the opportunities in our previous blog post, Make the most of your SMSF cash allocation.

Now we will look at some of the practical steps involved in maximising concessional (pre-tax) and non-concessional (after-tax) superannuation contributions. 

Concessional Contributions Caps
With only a few months to go before the end of the financial year, the first step is to check your superannuation account to see exactly how much of your concessional or pre-tax contribution cap you have used. Here's what you need to look out for:

  • Check with your superannuation fund and on your latest payslip to see what is being reported as superannuation contributions.
  • Under the rule changes, from 1 July 2017 you no longer have to meet the 10% income test rule or make salary sacrifice contributions via your employer to claim a deduction. You will be able to make your own contributions at any time each year and decide at the end of the year how much to claim as a deduction (subject to the $25,000 cap). This will help you with tax planning and will offer you a lot more flexibility than previously.
  •  Remember that sometimes June contributions are not paid until July so you may have less of your cap left than you think. Understand the contribution pattern to avoid mistakes and make full use of your cap.
  • If you have employer-funded insurance through superannuation, these insurance premiums usually count towards your concessional cap too. The same applies if you are self-employed and you pay for an Insurance via Super policy and claim the premiums as a tax deduction.
It also pays to plan ahead and consider a 'super splitting' strategy:

  1. Should you be 'super splitting' your concessional contributions to get funds in to Pension phase earlier? If there is an age difference between you and your spouse, take advantage of your age gap to get more funds in to Pension phase earlier. 'Super splitting' is a strategy whereby one spouse can have their concessional contributions moved to their partner’s account annually. For example, with a couple aged 55 and 61, the younger  spouse could super split their next five years of concessional contributions to their partner,  who can move the funds in to a tax free pension 5-7 years earlier.

  2. Should you be 'super splitting' now to boost Age Pension entitlements in retirement? Could you use the opposite 'super splitting' strategy if you or your spouse could get Age Pension benefits when they retire? For example, take the same couple aged 55 and 61 who have assets near the Centrelink Assets Test cut off threshold, the older spouse could super split their next five years of concessional contributions to their partner, so that less of their assets are counted towards the Age Pension Asset Test.

    Tip:

    If you're under 65 and your funds are in super Accumulation phase, know that these funds are not counted towards the Asset or Income Test. It’s not too late to split 2015-16 contributions – contact your financial adviser or your superannuation fund.

  3. The 'super splitting' strategy also works if you just want to even up your balances before retirement to use both partners' $1.6M pension transfer cap allowance. Starting this strategy early will leave you more options as you approach retirement. 

Non-Concessional Contributions Caps

The changes to the concessional rules provide a final one-off opportunity to get up to $540,000 of after tax or non-concessional contributions in to superannuation, but the devil is in the detail. Again the first step is to check your three year contribution history with all your funds. I always recommend checking for any other super funds recorded under the 'Super' tab of the ATO service on the MyGov website

Now the strategy is easy to understand if you have not previously made large non-concessional contributions as you can use the full $540,000 before 30 June 2017 and if you are under 65. However,  if you have triggered the '3 year bring forward rule' in the last 2 financial years or plan to do it this year by contributing more than $180,001, then the following limits are left to you with the following caps:

Year  Trigger bring forward Next 2 years
 2014-15 $180,001 or more Up to $359,999
 2015-16  $180,001 or more
Up to $279,999
 2016-17  $180,001 or more Up to $199,999
 2017-18  $100,001 or more Up to $199,999
 2018-19  $100,001 or more  Up to $199,999

If your super balance is greater than $1.6M, you can no longer make non-concessional contributions from 1 July 2017. Less than $1.6M? Any non-concessional contributions cannot take your balance beyond $1.6M. See the table below as an example:

Super balance  Contribution and bring forward available 
 Less than $1,300,000  3 years $300,000
 $1,300,000 - $1,400,000  3 years $300,000
 $1,400,000 - $1,500,000  2 years $200,000
 $1,500,000 - $1,600,000  1 year $100,000
 $1,600,000+  NIL

Spouse Contributions

Spouse contributions get a lift from 1 July 2017. This is a tax offset which has an income-tested maximum value of $540, and is available to any taxpayers contributing to their spouse’s superannuation fund. 

One of the positive changes that have been passed is to increase the spouse income threshold from $10,800 to $37,000 from 1 July 2017, with a shading out on incomes between $37,000 and $40,000.

Offset Calculation Formula

The tax offset is calculated as 18% of the lesser of:

  • $3,000, reduced by $1 for every $1 that your spouse's income was more than $37,000; and
  • the total of your contributions for your spouse for the year.
The maximum rebate remains at $540 for the contributing spouse. This is a great way to use savings to boost your spouse’s super and get a tax rebate for yourself.

SMSF-specific strategies

Finally, here's a couple of helpful tips for your SMSF strategy:

  • If you have a large income this year or a large capital gain, and expect to have a lower income next year, then you may make use of a Double Deductible Contribution strategy. This allows you to bring forward next year’s deductible contributions to this year and get the extra deduction in 2016-17 tax year. This strategy is useful for self-employed, retirees under age 65 and those whose salary only makes up less than 10% of their overall income.
  • Do not to leave it until the last moment to organise your contributions and don’t leave the funds in your bank account. Be aware of transfer times between your bank and your superannuation provider as some can take 2-4 days or more. Some clearing houses used by employers also only move funds every 7-14 days.

RaboDirect offers competitive savings accounts for established SMSFs and trusts. Find out which one is right for you.

Disclaimer: The views expressed, and any advice given, in the above articles are those of the authors, and do not necessarily reflect the views of RaboDirect.  We recommend that you seek professional advice before making any decisions relating to the matters discussed on this page and their related articles.