‘Grey clouds lift’ from catch-up contributions

Prior to the election, the Labor Party stated that it would remove the ability to make catch-up contributions if elected. However, with the Coalition returning to office, Mr Dunn said the “grey clouds that hung over catch-up contributions have now been lifted”.

This means that SMSF professionals may want to explore how this strategy can be used for their SMSF clients, particularly in conjunction with contribution splitting strategies, he said.

Mr Dunn reminded practitioners that contributions can be split by any member, provided their spouse is below preservation age or is aged between preservation age and 65 years but is not yet retired.

“Once the spouse has reached age 65, they are ineligible to have contributions split into their member account,” he said.

The types of contributions that are eligible to be split include employer contributions, salary sacrifice contributions, personal contributions where a tax deduction is claimed, contributions made by family and friends other than those made by the spouse or for a child, and allocation from reserves that are assessable such as allocations that meet an employer’s obligation to contribute, he said.

“The maximum amount of taxed splittable contributions that a member can split is the lesser of 85 per cent of the concessional contributions for that financial year and the concessional contributions cap for that financial year,” he said.

“The interaction of the unused catch-up concessional contribution rules will now allow for a higher amount to be split to a spouse where part of the concessional contribution cap has not been utilised by the member in the previous financial year and their TSB is less than $500,000 at 30 June of the prior year.”

Mr Dunn explained how the interaction of the two strategies would work with an example involving Gillian, whose employer contributed $16,000 into her SMSF.

“As Gillian’s TSB at 30 June 2019 was less than $500,000, she has an unused concessional contributions cap amount of $9,000 that can be carried forward to the following year,” he said.

In the 2019–20 financial year, Gillian had a salary sacrifice arrangement in place and had $23,000 made for her in salary sacrifice contributions and $11,000 in employer contributions, adding up to a total of $34,000.

“Gillian wishes to split her 2019–20 contributions with husband, Jack, who works part-time. The ability to split these contributions can occur after 30 June 2020,” he explained.

“[She] completes the superannuation contributions splitting application and provides it to the trustees, indicating that she would like to split 85 per cent of her taxed splittable contributions ($28,900), and declares that her TSB immediately prior to the financial year is less than $500,000, and her concessional contributions cap for the financial year is $34,000.”

As a result, the SMSF, he said, can accept her application and determines that it is valid because $28,900 is the lesser of both 85 per cent of the $34,000 ($28,900) concessional contributions made by her employer and Gillian’s concessional contributions cap ($34,000).

“The trustees arrange for the transfer of $28,900 to Jack’s member account in October 2020 after completion of the SMSF annual return,” he said.