BT outlines EOFY tips for super

Based on the types of queries coming through to the technical services team from advisers this quarter, some of the biggest focus areas for advisers have been downsizer contributions as well as complex tax and estate planning questions for SMSFs, said Mr Howard.

Downsizer contributions

Mr Howard said clients that are looking to sell their home might not be aware that the eligibility age for making a downsizer contribution into super is coming down in the new financial year to 60 years. Prior to 1 July 2022, a person has to be 65 years or older to make a downsizer contribution.

“Notably, if your client is about to turn 60, it’s worth checking if they are eligible, bearing in mind that generally from the date of settlement of the property sale, the client has 90 days in which to make the downsizer contribution,” explained Mr Howard.

“The crucial date is when the client puts the money into super. For example, at settlement, your client may be age 59, then turn 60 from 1 July. They will still be able to make a downsizer contribution from their birthday, if it falls within the 90-day period.”

To be able to contribute proceeds from the property sale into their super, clients need to have owned their home for 10 years or more. A downsizer contribution – up to $300,000 maximum – doesn’t count towards any of the contribution caps, and can still be made even if a person has total super savings greater than $1.7 million.

A client’s spouse can also make a downsizer contribution to their own super, of up to $300,000 from the same proceeds, even if they are not an owner of the property, Mr Howard added.

“A separate point to note, for clients looking to sell an investment property, is to consider contributing some of the sale proceeds into super, to potentially reduce their capital gains tax (CGT) liability, with the tax rate in super at 15 per cent, compared to paying CGT at the marginal rate, which could be as high as 47 per cent,” he said.

Personal contributions for SMSFs

SMSF clients that are planning to make personal contributions into their fund may need to be reminded of their obligations as trustees in relation to accepting personal super contributions from members, said Mr Howard.

“A trustee must acknowledge the receipt from a member of their notice of intent to claim a deduction, to ensure the tax deduction for the contribution is processed correctly,” he said.

With the work test still in place for those 67 and older till 30 June, Mr Howard said it’s important to check the clients’ eligibility to contribute.

In addition, prior to lodging their income tax return for FY2022, super members must submit a notice of intent to claim a tax deduction for the amount of the contribution with the trustee of their fund and receive acknowledgement that the notice has been accepted.

“Another point to note is that many clients will have carry-forward contribution cap space available, particularly since they can carry forward unused amounts from the previous three years into the current year,” Mr Howard said. “That means clients may be able to make extra concessional contributions, without having to pay extra tax.”

Spouse contributions

Advisers may want to remind clients who are planning to make spouse contributions as part of their tax strategy to do so before EOFY, said Mr Howard.

“Clients who typically benefit from this strategy are in a relationship where one person is in a high-income bracket, and the other person has a lower level of personal income,” said Mr Howard.

“The person with the higher income is generally better off maximising their personal contributions first, as this is likely to reduce their taxable income. That person can then consider making an after-tax contribution into their spouse’s super fund to receive the spouse contribution tax offset.”

It’s important to note that the receiving spouse is not precluded from also getting the government co-contribution; however, they would need to make an additional personal after-tax contribution, Mr Howard noted.

Pension members

Mr Howard also reminded advisers that the 50 per cent reduction in the minimum drawdown rates for those in pension phase has been extended till 30 June 2023.

This means that those in pension phase can choose to withdraw less of their retirement savings and keep a greater amount invested.

Monitoring cash levels

Advisers may also wish to review and look ahead to the level of cash in client accounts on wealth management platforms for the July and August period, said Mr Howard.

“Asset drawdowns to fund payments from platforms – such as pension payments – can be impacted after year-end, as trade settlements may take longer than usual, due to pending distributions from fund managers,” he said.