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Planning Ahead for (Deductions &) Changes in Conessional Contributions

Heres a good one for all of the Accountants and Trusted Advisors in the room where appropriate planning might assist you with:

  • Access tax deductions up to $30,000 under 49 years and $35,000 over 50 years (may become subject to work test) through concessional contributions. To be reduced to $25,000 across the board as at 1 July 2017.;
  • Bring forward next year’s concessional amount in this financial year, i.e. claiming for two years of concessional contributions in one year (i.e. between $55,000 and $60,000 concessional contributions this financial year).
  • This strategy would best be suited to those self-employed, operating a Self-Managed-Super-Fund (i.e. not receiving Superannuation Guarantee payments

In the lead-up to 30 June 2017 and the onset of changes to superannuation contribution amounts has resulted in numerous discussions regarding strategies around either contributing additional amounts prior to changes or simply, maximising allowable deductions.

Now might be an appropriate time to be reviewing your client accounts if they:

  • Have realised/about to realise a large Capital Gain;
  • Forecast income conditions for the year ahead are not certain;
  • Have realised they’re closer to retirement than otherwise thought;
  • Making additional superannuation contributions; and/or
  • Simply looking for tax deductions.

When claiming a deduction in terms of concessional contributions, the CC caps generally don’t impact on whether a deduction is available to the contributor. Allowing for a contribution made is to a complying superannuation fund by 30 June, the contributor (such as an employer) can generally claim a tax deduction in that financial year.

The possibility that a deduction can be claimed for a large contribution to an employee’s superannuation fund, contributions caps (as mentioned) exist which limit the amount of contributions which can be admitted and taxed within the super fund.

While the new concessional contribution cap will become $25,000, it is a possibility for individuals to make an additional contribution in June this financial year without breaking their concessional contributions limit. By using what is commonly referred to as a ‘contributions reserve’ (although it is probably more appropriately called a holding account or suspense account) this can be achieved.

The Superannuation Industry (Supervision) Regulations 1994 (“SIS Regs”) state the Trustee of a superannuation fund must allocate contributions within 28 days after the end of the month in which the contribution is received. It is possible for a contribution made on 1 June 2017 to be held by the Trustee (in the reserve or holding account) until 28 July 2017. Where the contribution is held by the trustee, it won’t count towards the member’s contributions cap until it is allocated by the Trustee. As such, a contribution made in the 2017 financial year might not be allocated to the member until the 2018 financial year.

The ATO released an interpretative decision ATO ID 2012/16 Superannuation Excess Contributions Tax: concessional contributions – allocation of contributions confirming the above. The ATO has also confirmed that a deduction is permitted in the year in which the concessional contribution is made, despite the contribution not being allocated to the member’s superannuation fund account until the following financial year.

By utilising the reserve account, it may allow individuals to make additional contributions to superannuation prior to 30 June, without breaching their contributions cap. Importantly though, this strategy is generally only effective in the context of a contribution to an SMSF.

Consider:

Jane is a member of an SMSF. Jane’s concessional contributions cap for the 2017 financial year is $35,000.

Jane makes a personal concessional contribution of $35,000 to the SMSF on 13 December 2017. The SMSF trustee allocated this contribution to Jane’s member account (as required).

On 4 June 2017, Jane makes a further personal concessional contribution of $25,000 to the SMSF (per 1 July 2017 contribution changes).

Jane meets the conditions to claim a personal deduction for the full $60,000 superannuation contribution in the financial year ended 30 June 2017.

The SMSF Trustee allocates the $25,000 concessional contribution made on 4 June 2017 to Jane’s member account on 27 July 2017.

Jane is then able to claim a deduction in the 2017 financial year for $60,000 and not exceed her concessional contributions cap for the 2017 financial year. The contribution made in June 2017 is counted toward Jane’s 2018 contributions cap.

If using this strategy, it is important that you consider the following:

  • Contributions have already been made during the financial year prior to making additional contributions before 30 June;
  • Any implications that will arise in the following financial year as a result of ‘bringing forward’ a contribution (can’t contribute any more than concessional amounts);
  • The Trustee’s obligations to allocate contributions is outlined in the SIS Regs, however checking the SMSF trust deed to ensure the use of ‘reserves’ or holding accounts in this manner is permitted; and
  • Prior to making concessional contributions, ensure the entity meets the conditions to claim a tax deduction.

Bearing in mind the above is only an indication, always, always, always speak to your Trusted advisor to ensure this is right for you.

For any questions, Tony and I are always good for a chat.

Paul Conte

Principal Advisor at Kofkin Bond & Co.

See who we are at: www.kofkinbond.com.au

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