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Death tax on superannuation balance

Death tax on superannuation balance

Members usually look to the bottom line of their annual statements to check the growth or improvement, hopefully, in the balance of their benefits since the last report.  Members should also note the tax make up of the balance and consider the estate planning aspects in the event of any untimely death.

Tax components – Tax Free and Taxable

The tax free portion of your super benefits is usually from non-concessional or non-deducted contributions and generally this total is not substantial.   The taxable portion is from employer and other concessional or deducted contributions and generally is the significant tax component.

Upon the death of a member, the deceased member’s superannuation entitlement generally may only be paid to the member’s dependants, or the member’s legal personal representative such as an executor.  There are no tax consequences where the entitlement is paid to a spouse or children under 18 years of age (24 years if financially dependant).  However, where the entitlement is paid to adult non-dependant children, and this is not uncommon, the taxable portion is taxed at 17% including medicare, and therefore can be a significant amount!

A little estate planning in advance would be invaluable in optimising the tax components.

For more information on estate planning CONTACT US today!

Purchasing a new or second hand business vehicle?

Contemplating purchasing a new or second hand business vehicle?

Purchasing a new or second hand business vehicle?  Temporary full expensing is available if purchasing eligible depreciating business assets up until 30 June 2022 – in other words, the business will be able to claim an immediate full deduction for the full cost of purchasing rather than claim depreciation on a pro-rata basis over future years.

If the cash is not readily available, a chattel mortgage or equipment loan to finance the purchasing of the vehicle will enable you to claim the outright full cost deduction as well as, if registered for goods and services tax, claiming the GST credits up front! Furthermore, interest on the loan repayments will be deductible, as well as the business use operating costs of fuel, registration, insurance etc.

On a cautionary note, hire purchase of any new vehicle will not qualify the business for “purchase” cost deduction as hire purchase does not transfer ownership of the vehicle until the hire purchase agreement concludes, and when usually, an option to purchase is exercised.

For more information on super choice CONTACT US today!

Photo credit: James Dimas

Contributions to superannuation

Contributions to superannuation

    • Generally very tax effective in the fund as maximum tax rate of 15%, discounted capital gains taxed at 10% and in the retirement pension paying phase income is tax-free!
    • Concessional (deductible) contributions of up to $27,500 per annum
    • Catch up concessional contributions available from 2019 and subsequent years, where total superannuation balance is less than $500,000
    • Non-concessional (non-deductible) contributions of up to $110,000 per annum
    • Possible bring forward of three years non-concessional (non-deductible) contributions totalling $330,000 subject to total superannuation balance being below the prescribed threshold and taxpayer less than 67 years
    • No work test for 65 and 66 year old contributors and no work test for those 67 to 74 years likely from 1/07/2022
    • Downsizer contributions of up to $300,000 for each owner over 65 years, may be made and are not constrained by the total superannuation balance nor subject to the general contributions cap, however property ownership of ten years and contribution within 90 days of the change of ownership (contract date) necessary
  • Capital gains tax small business concessions under the “15 year exemption” and the “retirement exemption” for disposals of active assets of small business allow contributions of capital proceeds or capital gain:
“15 year exemption” “retirement exemption”
capital proceeds of up to $1,615,000 capital gain of up to $500,000 (lifetime limit)

For more information on super contributions CONTACT US today!

Tax planning for 30 June 2022

Tax planning for 30 June 2022

Traditionally, 30 June each year brings forth a rash of initiatives through which the level of taxation for the current financial year may be reduced. Consult your tax advisor about tax planning for 30 June 2022 as follows:

Timing of Income

Where possible, defer receipt of assessable income until after year end.

Timing of expenses

Where possible, incur deductible expenses prior to year end.

Temporary full expensing

Eligible new assets first held and first used or installed ready for use for a taxable purpose between 7.30pm AEDT 6 October 2020 and 30 June 2022 may be fully expensed – i.e. immediate tax deduction.

Bad debts

Review debtors and, where debts are unrecoverable, physically write off before year end to claim a tax deduction.

Trading stock on hand

Scrap any obsolete or damaged stock before 30 June.

Superannuation

Ensure payments for employees or by self-employed persons are physically made and received by the fund on or before 30 June.

Pre-payments

Immediate deductions are available for:

  • Pre-payment of salary
  • Expenses <$1,000
  • Individuals, for non business expenses incurred on or before 30 June for the next twelve months – e.g. interest on rental property

Superannuation rebates

Contributions made on behalf of a low or no income spouse of up to $3,000 can attract an 18% rebate – i.e. $540.

Superannuation co-contributions

The Government will contribute up to a maximum $500 to add to eligible employees’ personal contributions to superannuation funds of up to $1,000, subject to an assessable income (reportable fringe benefits, reportable employer superannuation contributions and salary sacrifice superannuation contributions) limit of $41,112, phasing out at $56,112, subject to age, income and total superannuation balance.

Motor vehicle expenses

Where significant employment or business use of a personal motor vehicle is claimed, maintain a log book for twelve weeks to maximise the tax deduction and keep records of all expenses. The log book must be renewed every five years and can be kept in an electronic or paper format.

Record the financial year end odometer reading.

Plant and equipment

Review your asset schedule to scrap obsolete, worn out, lost or stolen items to maximise your depreciation claim.

Delay the disposal of any plant and equipment likely to be profitable in terms of written down value until 1 July.

Small businesses (turnover <$500m) can claim an immediate deduction for assets acquired, first used or installed ready for use, from 6 October 2020 until 30 June 2022, costing under $150,000 (GST exclusive) through temporary full expensing!

Home office expenses

If carrying on a business from your home, pro rata tax deductions for interest or rent, insurance etc are available but impact on the main residence exemption from capital gains tax.

Directors’/employees’ entitlements

Ensure any 2022/2023 salary packaging arrangements are in place before the commencement of the new tax year.

Bonuses and fees for the 2021/2022 year need to be approved at meetings and in place prior to 30 June 2022 but may be paid in the subsequent year.

Private company loans

Any loans to shareholders or associates during 2021/2022 need to be repaid on or before 15 May 2023 unless a formal loan agreement is put in place, with annual minimum principal repayments and interest.

Sale of investments

Delay the sale until after year end where a gain is anticipated to defer tax for a year.

Crystallise any capital losses in the tax year to offset against any gains made in the same year.

Timing of disposal under a contract for capital gains tax purposes is generally the date of making the contract, not settlement.

Capital gains tax concession

Assets need to be held for at least twelve months to access the 50% discount for individuals and trusts and the 33⅓% discount for superannuation funds.

Ceasing business / sale of business assets

Consider redundancy payments for employees.

Plan “golden handshake” payments for after the tax year end.

Small business capital gains tax relief measures may be available for:

  • 15 year exemption
  • 50% reduction
  • Retirement exemption
  • Replacement asset rollover

PAYG payment summaries

Summaries and summary statements for employees are required by the ATO by 14 August, otherwise substantial penalties apply.

Superannuation fund expenses

All expenses of a fund ought to be paid by the fund in order to claim a tax deduction.

Depreciable plant costing $300 or less

Salary and wage earners and rental property owners will be entitled to an immediate deduction if plant for work related purposes costing $300 or less is purchased before 1 July 2022. Some purchases you may consider include:

  • Books and trade journals
  • Briefcases/luggage or suitcases
  • Calculators, electronic organisers
  • Software
  • Stationery
  • Tools of trade

Clothing expenses

Purchase and pay for work related clothing/expenses prior to the end of the income year, such as:

  • Compulsory, non-compulsory (and registered) occupational specific and protective clothing
  • Other expenses associated with such work related clothing such as dry cleaning, laundry and repair expenses

Self-education expenses

Consider pre-paying the following self-education items before the end of the income year:

  • Course fees (but not HELP fees), student union fees and tutorial fees
  • Interest on borrowings used to pay for any deductible self-education expenses

Also, bring forward purchases of stationery and text books – i.e. those which are not required to be depreciated).

Other work related expenses

Employees can pre-pay any of the following expenses prior to 1 July 2022:

  • Union fees
  • Subscriptions to trade, professional or business associations
  • Magazine and newspaper subscriptions
  • Seminars and conferences
  • Income protection insurance (excluding death and total/permanent disability)

 

Note: When pre-paying any of the above expenses before 1 July 2022, ensure that any services are provided within 12 months of the payment and before 1 July 2023. Otherwise, the deductions must be claimed over the period of the pre-payment. Any expense under $1,000 is exempt from pre-payment rules.

 To ensure you don’t miss out on saving yourself $$$, CONTACT US TODAY about tax planning 30 June 2022.

Superannuation contributions 2021/2022

Superannuation contributions 2021/2022

Superannuation remains a tax advantaged long term investment which will benefit from compounding over the years for retirement.

Concessional/deductible contributions by employers for employees

Maximum contributions for each employee up to 75 years of age, including “salary sacrifice” (needs to be proactive) and superannuation guarantee payments without incurring excess concessional contributions tax: $27,500.

Conditions:

  • Between 67–74 years must satisfy the work test and only contributions received before the 28th day after the end of the month in which member turns 75 are deductible. (This condition applies to non-mandated contributions – e.g. salary sacrifice. Mandated contributions such as super guarantee can be made regardless of age and no minimum hours required.)
  • Contributions need to be received by the fund by the 28th of the month following quarter end.

Concessional/deductible personal contributions by individual taxpayers, including investors

Maximum contribution by each individual up to 75 years of age without incurring excess concessional contributions tax: $27,500.

Conditions:

  • The individual must notify the fund of intention to claim a deduction (form NAT 71121) and the fund must acknowledge the notice.
  • Contribution cannot create or increase a loss (deduction cannot exceed taxable income).
  • Over 67 years must satisfy work test to be able to claim a deduction.
  • For individuals turning 75, only contributions received before the 28th day after the end of the month in which member turns 75 are deductible.

From 2022-2023 financial year onwards, funds can accept non-mandated contributions for members under 75 years of age and there is no requirement to meet the work test.

High income earner contributions (Division 293)

From 1 July 2017, an additional 15% “contributions tax” is applied to those with adjusted taxable incomes (broad definition) exceeding $250,000.

Non-concessional/non-deductible contributions by individual taxpayers

Maximum contribution by each individual up to 75 years of age without incurring excess non-concessional contributions tax: $110,000 subject to individual’s total superannuation balance.

Notes:

  • Over 67 years the work test will need to be satisfied. From 1 July 2022 work test for 67 to 74 year olds not required for voluntary or salary sacrifice contributions.
  • An individual taxpayer who is under 67 years of age in an income year can bring forward two years’ entitlements and make one contribution of $330,000, subject to the individual’s total superannuation balance, without exceeding the cap – i.e. no further contributions over the three years (from 1 July 2022 those under 75 years are eligible).
  • If an individual’s total superannuation balance at 30 June 2017 was $1.6m or higher and at 30 June 2021 $1.7m or higher, the non-concessional cap will be nil.

Excess concessional/deductible and non-concessional/non-deductible contributions

From 1 July 2013 excess concessional (only) contributions will be taxed at the member’s marginal tax rate with tax offset and an interest charge applied. The excess may be withdrawn from the fund.

The punitive tax rate of 47% remains for excess non-concessional contributions.

Government co-contributions

The co-contribution made by the Government of up to $500 is available to employees and the self-employed less than 71 years of age at the end of the income year who make non-concessional/ undeducted personal superannuation contributions of up to $1,000 and whose total income (assessable, reportable employer superannuation contributions and reportable fringe benefit amounts) is less than $56,112; the lower threshold of $41,112 allows for the full co-contribution 50c/$1.

Conditions:

  • 10% or more of the person’s total income is attributable to employment or carrying on of a business.
  • Total superannuation balance must be less than the $1.7m cap at 30 June the previous year.

Government contributions for low income earners (LISTO)

From 1 July 2017, a low income superannuation tax offset is available calculated at 15% of concessional contributions made by or on behalf of individuals less than 71 years of age with adjusted taxable incomes of up to $37,000 matched by the Government up to an annual maximum amount payable of $500.

Contributions for spouse – tax offset

A taxpayer making a personal non-concessional/non-deductible contribution for his/her non-working or low income spouse is eligible for a tax offset of up to $540 where a contribution of up to $3,000 is made for a spouse whose assessable income, reportable fringe benefit and reportable superannuation contribution amounts do not exceed $37,000. The offset is phased out at $40,000.

Condition:

No work test is applied if the spouse is under age 67, but between 67 and 74 years of age the spouse must satisfy the work test. Offset applies if spouse was under 75 years of age at the time of the contribution.

Fund acceptance of contributions – age and work test

A regulated superannuation fund may accept contributions as follows:

  • If the member is under age 67

 – all contributions made

  • If the member is 67 or more but under 75 years

– mandated employer contributions

– employer or member contributions, provided the work test is satisfied. Contributions for member turning 75 may be accepted up to the 28th of the month of 75th birthday.

  • If the member is 75 years or more

– mandated employer contributions

A person satisfies the work test if gainfully employed at least 40 hours in a period of not more than 30 consecutive days in that financial year.

Superannuation guarantee contribution rate

From 1 July 2014, the contribution rate increased from 9.25% to 9.5% and remained so until 1 July 2021 when it increased by 0.5%. The 2021/2022 SGC rate was 10% and the 2022/2023 rate is 10.5%.

The minimum monthly wage of $450 to qualify for super guarantee contributions has been scrapped effective 1 July 2022.

Reportable employer super contributions

From 1 July 2014, the payment of salary sacrifice superannuation and other additional* superannuation over and above the compulsory superannuation guarantee charge, paid by employers for employees, will need to be recorded on employees’ year end PAYG summaries.

*Where employee influences the rate or amount of employer contributions. An employee is considered to have the capacity to influence if he or she can directly negotiate the rate or amount of employer contributions.

As a guideline, the capacity to influence may be shown by:

  1. The employer’s relationship with the employee. For example, the employee is the spouse of the employer.
  2. The employee’s involvement in negotiations/preparation concerning the terms of any industrial agreement governing super contributions.
  3. The amount contributed for the employee relative to the compulsory contributions the employer is required to make.
  4. The employer’s super contribution arrangements for other employees.
  5. Any non-arm’s length dealings.

Unused concessional/deductible contributions (both for employers and individual taxpayers, including investors)

From 1 July 2018, where an individual’s superannuation fund balance is less than $500,000 (as at previous 30 June), unused concessional contributions (up to the maximum $25,000 each year) may be aggregated and claimed on a rolling five year basis. The unused contributions are available for a maximum of five years, expiring after five years. The unused contributions can be accessed from 1 July 2019 and contributed in addition to the $25,000 / $27,500 cap already allowed.

Notice of intention to claim “catch up” needs to be provided to the fund and, if over 67 years, the work test needs to be satisfied. From 1 July 2022 no work test applies for non-mandated contributions for those less than 75 years of age.

Home proceeds (known as “downsizing”, one-off contribution, not subject to usual cap)

From 1 July 2018 proceeds from sale of home may be contributed, subject to:

  • Individuals aged 65 years or more (from 1 July 2022 aged 60 years or more)
  • Proceeds from sale of primary dwelling / main residence
  • Lived therein and owned for at least 10 years
  • Provided house sells for at least $600,000, each joint owner may contribute up to $300,000
  • Contribution must be made within 90 days of receiving the proceeds of sale (usually settlement)
  • Contract must be signed on or after 1 July 2018
  • Usual age and work tests not applicable