David Busoli, principal of SMSF Alliance, said individuals whose income exceeds the Division 293 tax threshold of $250,000 will pay an additional 15 per cent tax on concessional contributions, including any contributions made under the catch-up rules that breach the threshold.
“This means the tax benefits of making very large contributions may be diminished but still useful,” Busoli said.
Busoli said one way of diminishing tax implications is to make a contribution equivalent to this year’s cap plus any unused cap amounts for the previous five years.
He warned, however, that this can only be done provided a member has a total super balance of less than $500,000 as at the previous 30 June and is eligible to make concessional contributions.
“SMSF members may even make an additional concessional contribution equivalent to next year’s cap in June, thereby enabling the tax deduction this year by using up next year’s concessional cap,” he said.
“However, the contribution should only be made if the member has sufficient taxable income to support the deduction.”
He added that if the contribution is more than the member’s taxable income, no personal benefit is obtained, though the member’s superannuation account will still be subjected to a 15 per cent contributions tax on the excess amount.
Similarly, the contribution is only worthwhile if the member will save more tax than the 15 per cent contributions tax the super fund will pay on the contribution.
“Also remember that, if the member is over 67, they will need to satisfy the work test unless they’re eligible for the exemption to take the deduction. If they don’t, the contribution will be non-concessional,” he said.
Busoli added that contributions may be made in circumstances that are not immediately obvious.
For example, when a child is eligible to receive personal concessional contributions, such as an 18-year-old who has just received their tax file number, the previous five years’ unused contributions can be accessed and a sizeable distribution made from a family trust to give the child a significant retirement boost.
“The same eligibility applies to a recent immigrant with a tax file number, even though they may not have been in Australia the previous five years,” he said.
Busoli added that another strategy regarding contributions is spouse contribution splitting, where 85 per cent of the deductible contribution – including the carried forward amount – may be split to an eligible spouse.
“This could be quite useful for an account equalisation strategy or to reduce a member’s total super balance below relevant caps,” he said.
