With so much discussion and speculation surrounding the 2016 May Federal Budget, Australia’s taxation system and Government’s ability to manage the budget deficit without losing it’s AAA credit rating, we need to be pro-active to ensure that strategies can be implemented to assist in the medium to long term tax efficiency of your retirement savings. To this end, we have set out some strategies that could assist your retirement planning, if implemented prior to the Budget. With so much discussion and speculation surrounding the 2016 May Federal Budget, Australia’s taxation system and Government’s ability to manage the budget deficit without losing it’s AAA credit rating, we need to be pro-active to ensure that strategies can be implemented to assist in the medium to long term tax efficiency of your retirement savings. To this end, we have set out some strategies that could assist your retirement planning, if implemented prior to the Budget.
Make Non-Concessional Contributions Before The Budget
At present you are able to make after tax contributions to superannuation and these contributions are known as “non-concessional contributions (NCC)”. The maximum amount that you can contribute under the NCC cap is as follows:
The NCCs are a “tax free” component within the Fund. This means that:
- no tax is payable when the contribution is made to the fund
- the NCC will increase your tax free benefits within the Fund and from an estate planning perspective these tax free components are paid to either dependants or non-dependants tax free
- if tax is payable on pension payments or income streams paid from the superannuation fund then you only pay tax on the taxable portion – not the tax free portion. Hence, the greater the tax free portion the less tax is paid.
Important: You will need to check with us as to what NCC you can make this year as it is imperative that you do not exceed your NCC cap
Withdrawal And Re-Contribution Strategy
Before the budget is handed down if you have Unrestricted Non-Preserved benefits within your superannuation fund you could consider drawing a one off payment from the Fund and then re-contribute the money back to the Fund as a NCC. This re-contribution could be made on your own behalf or on behalf of your spouse/partner.
The benefit of doing this withdrawal and re-contribution strategy is as follows:
- where there is a significant gap between your balance and the balance of your partner/spouse it will assist in bridging the gap. If the Government changed the rules and placed a cap on tax concessions on income derived within the fund on a member by member basis then a re-contribution to a partner/spouse with a lower balance would mitigate the impact of any such change on your superannuation.
- whether you re-contribute for yourself or your partner/spouse, you will increase the tax free components within the fund. This will improve tax efficiency for you now and will minimise tax on payment of a death benefit to a non-dependant beneficiary (such as an adult child).
Lump Sum Withdrawal
For those in retirement and with no other income, if you wanted more tax certainty you could consider withdrawing money from the superannuation fund and investing that money in your own name or joint names with your partner/spouse.
As each individual has a tax free threshold of $18,200 it means that you could earn $18,200 each without having to pay tax. When you also take into account the Low income Tax Offset of $445 the effective tax free amount rises to $20,542.
If you are of aged pension age, the tax free amounts could further increase with the Senior and Pensioners Tax Offset.
Please contact our office during April to discuss these and other possible tax planning strategies for the 2016 tax year.