Planning for 2018-19 – never too early to start!
By Colin Lewis,
Head of Technical Services,
Fitzpatricks Private Wealth
With the end of the financial year all but over, now is a good time to get your ’financial house’ sorted for 2018-19. Good planning is a year-round consideration, not just a June 30 event!
So, what’s in store for 2018-19? What are the super opportunities and considerations for the new tax year?
All but one of the superannuation reforms announced in the 2016 Federal Budget have now been up and running for a year.
For the new financial year, the pre-tax, concessional contributions (CCs) cap remains at $25,000. You and/or your employer may contribute up to a total of this amount regardless of how much you have in the superannuation system, i.e. your total superannuation balance (TSB).
The work test must be met if you are aged 65 to 74 and wish to contribute. Unfortunately, the Government’s announcement in the recent Federal Budget to allow voluntary contributions in the first year the work test is not met for people with a TSB below $300,000 doesn’t come into play until 1 July 2019.
If you’re an employee earning more than $263,157 and have multiple employers, you can now nominate that your wages from an employer is not subject to the compulsory Superannuation Guarantee (SG). Thus, you avoid beaching the CCs cap, but only do this if you can negotiate a higher salary because paying tax on something is better than not getting anything at all!
As in 2017-18, if you wish to top-up your super you can choose between making salary sacrifice contributions, provided your employer offers this, or making a personal deductible contribution(s) or a combination of both.
Salary sacrifice allows you to ‘set-and-forget’ for the year as contributions will automatically be made for you on a regular basis.
Making regular deposits into an investment at regular intervals over a period of time is a powerful way to invest and is known as ‘dollar cost averaging’. It gives you the opportunity to build exposure to growth assets in a disciplined way, can reduce the risk of investing during times of market volatility and helps avoid the pitfalls of attempting to ‘time’ entry into markets. Entering into a salary sacrifice arrangement with your employer is a means of implementing dollar cost averaging.
On the other hand, making your own contribution(s) gives you greater control and certainty over the amount and timing of those contribution(s) and dealing with the CCs cap particularly around year end, but you need to be disciplined. If you wish to adopt dollar cost averaging, you’ll need to administer this yourself.
Making your own contributions means you’re not reliant on someone else doing it and you have peace of mind knowing that your money goes into your super fund. Many employers leave it for months between the money being deducted from wages and making the contribution. Unfortunately for some, the money never gets there! Also, it avoids a nightmare should your employer go into administration/receivership, as money deducted from salary but not contributed may take years to recover.
Remember, in working out your voluntary CCs, you must take into account, amongst other amounts, your employer’s SG contributions, your employer’s notional taxed contributions if you’re a member of a defined benefit fund and your fund’s administration expenses and/or insurance premiums for cover in the fund if paid by your employer, as all count towards the CCs cap.
If you choose to make a personal deductible contribution(s) you must provide the super fund trustee with a notice of intent (NOI) to claim a tax deduction for the contribution – usually done around tax time. Be very careful not to touch the contribution, e.g. roll it over to another fund, withdraw it, or start an income stream, before first lodging your NOI.
The last and one of the few favourable measures of the super reforms comes into play from 1 July. It’s the ability to carry forward any unused CCs cap amount arising from that date. Any unused amount can be carried forward on a rolling five-year basis but can only be used if your TSB is less than $500,000. So the good news is that if you don’t use your entire CCs cap amount you may be able to use it in future! However, carrying forward unused CCs cap amounts may result in those contributions being less tax effective given the newly legislated personal income tax rates and thresholds.
You can now split up to 85% of your CCs made in 2017-18 to your spouse’s super. You may wish to do this to even up entitlements to maximise the amount you can both get into the tax-free retirement phase given the transfer balance cap (TBC), or to move entitlements from a younger to older spouse for earlier access to tax-free benefits, or from a spouse at or over Age Pension age to a younger spouse to shelter from Social Security means testing.
If you used a ‘contribution reserving strategy’ leading up to June 30 to maximise your tax deduction in 2017-18, don’t forget to allocate that contribution by 28 July!
For 2018-19, the after-tax, non-concessional contributions (NCCs) cap remains at $100,000, but you can only make an NCC if your TSB is less than $1.6 million at 30 June 2018.
If you’re under age 65 anytime in 2018-19, it’s possible to trigger the ‘bring-forward’ rule which is determined by your TSB. If it’s less than $1.4 million at 30 June 2018 then the maximum NCCs cap is $300,000 and the bring-forward period is three years. If your TSB is between $1.4 million and $1.5 million then its $200,000 and 2 years, otherwise the NCCs cap is $100,000 with no bring-forward period. However, if you triggered the bring-forward rule in 2016-17 then the maximum NCCs cap over the three-year bring-forward period is $380,000.
So if you wish to make an NCC, it’s imperative to check both your TSB as at 30 June 2018 and contribution history from 1 July 2016.
If you sell your home owned by you or your spouse for a continuous period of at least 10 years and you are aged 65 or more then you may now be able to contribute some or all the sale proceeds into super. These contributions, known as ‘downsizer contributions’, allow you to boost your super savings even if you’re otherwise ineligible to contribute under superannuation law due to your age, work status or the amount you’ve got in super, i.e. TSB.
If you’re an eligible small business owner selling your business or an active business asset in 2018-19, don’t overlook the opportunity to make a super contribution within the CGT cap of $1.48 million which is exempt from the NCCs cap.
Finally, if you commence a retirement phase pension in 2018-19, be mindful of the $1.6 million TBC which hasn’t changed.
Now is the time to start planning to get ahead of the game!