Dennis

With the end of 2020-21 financial year fast approaching, don’t miss out on the opportunity to utilise these super strategies before 30 June to help boost your retirement savings and potentially save on tax.

1. Contribute into super and claim a tax deduction

By contributing some of your after-tax income or personal savings into super, you may be eligible to claim a tax deduction. The contribution is generally taxed at up to 15% in the fund (or up to 30% if you earn $250,000 or more). Depending on your circumstances, this potentially could be a lower tax rate than your marginal tax rate.

To claim a deduction, give your super fund trustee a valid “intent to claim deduction” notice and have it acknowledged by them. Keep in mind that personal deductible super contributions count towards your annual before-tax (or concessional) contributions cap. Concessional contributions also include all employer contributions, including Superannuation Guarantee. The concessional contribution cap is currently $25,000 for the 2020-21 financial year and any contributions you make above this limit may attract additional tax.

You may be able to contribute more than the standard concessional contribution cap if you have unused concessional contributions accrued from 1 July 2018 and have less than $500,000 in total super balance* 1 on 30 June 2020.

* Your total super balance includes accumulation and retirement phase interests plus rollovers between each phase. If you have a self-managed super fund with an outstanding limited recourse borrowing arrangement, this value is also counted. Any personal injury or structured settlement contributions are deducted.

2. Consider making a one-off super contribution

After-tax (or non-concessional) super contributions are made with money you’ve already paid income tax on such as personal savings. They are contributions you won’t be claiming a tax deduction for.

Contributing to super can be a tax effective strategy as earnings for investments held within super are taxed at up to 15%. This can compare favourably to investment earnings earnt outside super which are taxed at your marginal tax rate.

The annual limit for after-tax contributions is currently $100,000, provided your total super balance1 is below $1.6 million at the start of the financial year.

In some circumstances, you can bring forward three years of after-tax contributions into one year. This is known as the bring forward provision. It allows you to contribute up to $300,000 if you haven’t triggered the provision in the previous two years and your total super balance is below $1.6 million on 30 June 2020.

If your total super balance is close to $1.6 million, you can only access the annual contribution cap.

Remember, once you’ve put money into your super fund, you won’t be able to access it until you reach preservation age or meet another “conditions of release”.

For more information on conditions of release, visit www.ato.gov.au and search ‘condition of release’.

3. Watch your Super Balance

If your total super balance is currently more than $1.6 million, it’s worthwhile to check whether your total super balance was less than $1.6 million on 30 June 2020. If your total super balance was less than $1.6 million on 30 June 2020, this might be your last chance to make a non-concessional (after-tax) super contribution. Your financial adviser can work this out for you.

4. Get a super top-up from the Government

To encourage low-income earnings to grow their retirement savings, adding to your super with after-tax money could entitle you to a Government co-contribution worth up to $500 if you earn less than $54,837 and are aged below 71 on 30 June 2020. You must have a total superannuation balance of less than $1.6 million at the start of the financial year also.

The Government will automatically make the maximum co-contribution of up to $500 if you earn less than $39,837 in the 2020-21 financial year and you’ve made an after-tax contribution of at least $1,000. The co-contribution amount reduces as your income rises, reaching zero if your annual income is $54,837.

5. Boost your spouse’s super and claim a tax offset for yourself

If your spouse or partner’s assessable income is less than $40,000 in a financial year, you can make super contributions on their behalf and potentially claim a tax offset for yourself.

For spouse or partners who earn less than $37,000, the maximum tax offset is $540 in the 2020-21 financial year. This amount gradually reduces to zero if they earn over $40,000 in a year.

6. Split contributions to your spouse to equalize super balances

You can split up to 85 percent of concessional contributions (up to the concessional contribution cap) made during a financial year with a spouse, provided they are not over age 65 or reached their preservation age and retired. The application to split contributions must generally be made before the end of the financial year immediately after the financial year in which the contribution was made.

If you want to split concessional contributions made in the 2019/20 financial year you must lodge the application with the super fund before 30 June 2021.

7. First Home Super Saver Scheme

If you are saving for your first home, you can make voluntary contributions to help save for a deposit. These contributions, and any associated investment growth, can be accessed subject to eligibility criteria. The total you can contribute and save towards the scheme is capped at $15,000 a year and the maximum you can access is capped at $30,000.

You can contribute a mix of before and after-tax contributions. Superannuation Guarantee contributions from an employer and those over the contribution caps cannot be accessed.

8. Protect your income in a tax effective manner

If you are working and rely on your income to support yourself and your loved ones, consider an income protection insurance policy which pays up to 85% of your pre-injury income if you’re unable to work due to an accident or sickness.

By purchasing an income protection insurance policy in your own name outside of super, you may be eligible to claim premium payments as a tax deduction this financial year.

9. Prepay interest on investment loans

Borrowing to invest can be a tax-effective means of wealth accumulation. If you borrow to invest into shares, managed funds, listed securities or any other asset that generates assessable income you can claim a tax deduction on the interest of the loan. You can prepay interest on your investment loan before 30 June and claim a tax deduction in the current financial year. This may help you with your cashflow.

Important note

This publication is general in nature and has been prepared without taking into account the objectives or circumstances of any particular individual or entity. You must satisfy eligibility criteria before you can take advantage of any of these strategies. Please speak with your financial advser who can help you decidw which strategies are most appropriate.

Disclaimer

This is a publication of Australian Unity Personal Financial Services Limited ABN 26 098 725 145 (AUPFS), AFSL 234459. Its contents are current to the date of publication only, and whilst all care has been taken in its preparation, AUPFS accepts no liability for errors or omissions. Tax rates and figures noted are valid for the 2019-20 financial year. The application of its contents of specific situations (including case studies and projections) will depend upon each particular circumstance. This publication is general in nature and has been prepared without taking into account the objectives or circumstances of any particular individual or entity. It cannot be relied upon as a substitute for personal financial, taxation, or legal advice.

From 1 July 2021, the concessional and non-concessional contributions caps are set to increase due to indexation:

As part of this indexation, the general Transfer Balance Cap will increase from $1.6 million to $1.7 million. Some common questions regarding how indexation will impact super is addressed below.

Does this affect my ability to make non-concessional contributions from 1 July 2021?

Non-concessional contributions are personal contributions made into super sourced from after tax income e.g. using your personal savings to contribute.

To be eligible to make a non-concessional contribution, you must be under 67 or have satisfied the work test at the time when contribution is made. Your available non-concessional cap depends on your total superannuation balance as noted below.

The bring-forward rule allows those under age 65 (who are not already in an existing bring forward period) to make up to three financial years’ worth of non-concessional contributions to their super in a single income year without incurring excess contributions tax (currently 47%). Essentially, the rule allows you to ‘bring forward’ your next two years of non-concessional contributions general cap into the current financial year.

If you are not eligible to access the bring-forward rule, you may only make a non-concessional contribution of up to $100,000 if your total super balance on 30 June 2021 was less than $1.7 million.

There is a proposal currently before parliament to allow members aged 65 and 66 to use the bring forward rule. If legislated, members under age 67 may access the bring forward rule.

I have previously triggered the bring forward rule and am still in a bring-forward period, am I able to make additional non-concessional contributions due to this indexation?

No – as you have previously triggered the non-concessional contribution bring-forward rule and are still in a bring forward period, the total amount of non-concessional cap you have brought forward remains $300,000. You will not benefit from the increase in the non-concessional cap until the bring-forward period expires.

For example, if you triggered the bring-forward rule in 2020- 21 your bring forward period expires at the end of the 2022-23 financial year.

How does the general transfer balance cap indexation affect my super?

The transfer balance cap places a lifetime limit on the amount of super you can transfer into retirement phase income streams, including pensions and annuities. When the general transfer balance cap indexes, it may alter the amount of super you can transfer into retirement phase income streams accordingly.

As you transact on your super by commencing/commuting retirement phase income streams, events that count towards your transfer balance cap are recorded against a transfer balance account. Essentially, a record of credits and debits. If you had a transfer balance account before 1 July 2021, your transfer balance cap will be:

• $1.6 million if, at any time between 1 July 2017 and 30 June 2021, the balance of that account was $1.6 million or more
• between $1.6 and $1.7 million in all other cases, based on the highest ever balance of your transfer balance account.

If you commence a retirement phase income stream and start a transfer balance account after 1 July 2021, your transfer balance cap will be $1.7 million.

If at any time your transfer balance account exceeds your transfer balance cap, you may incur excess transfer balance tax and any excess amount will need to be removed from the retirement phase.

This information has been produced by Australian Unity Personal Financial Services Ltd (‘AUPFS’) ABN 26 098 725 145, AFSL & Australian Credit Licence 234459. Any advice in this document is general advice only and does not take into account the objectives, financial situation or needs of any particular person. It does not represent legal, tax, or personal advice and should not be relied on as such. You should obtain financial advice relevant to your circumstances before making investment decisions. AUPFS is a registered tax (financial) adviser and any reference to tax advice contained in this document is incidental to the general financial advice it may contain. You should seek specialist advice from a tax professional to confirm the impact of this advice on your overall tax position. Nothing in this document represents an offer or solicitation in relation to securities or investments in any jurisdiction. Where a particular financial product is mentioned, you should consider the Product Disclosure Statement before making any decisions in relation to the product and we make no guarantees regarding future performance or in relation to any particular outcome. Whilst every care has been taken in the preparation of this information, it may not remain current after the date of publication and AUPFS and its related bodies corporate make no representation as to its accuracy or completeness. Published: April 2021 © Copyright 2021

If you’re in the process of arranging your affairs, it’s important to ensure your assets are protected after you pass away. That includes nominating who will administer your estate.

Many people choose to appoint a close family member as executor of their estate without realising the extent of the burden they are placing on that person.

It can be a time-consuming and complicated role, so agreeing who will take on this responsibility when drafting an estate plan is vital.

“Choosing an executor is one of the most important decisions in the estate planning process, but sometimes the choice is made without fully considering the consequences,” says Anna Hacker, National Manager, Estate Planning at Australian Unity Trustees Legal Services

“It’s tempting to pick a family member or close friend, but due thought must be given to whether they have the time, the interest, or even the ability to take on the role.”

Ms Hacker said that she is surprised at how casual people can be about choosing an executor.

“I’ve seen situations where people haven’t bothered to tell the person they have nominated to be their executor,” Ms Hacker says.

“It comes as a huge – and sometimes unpleasant – surprise when they realise they have been given this duty.

“Some people simply may not want to take it on. It’s far better to find this out before finalising an estate plan, so that a more appropriate executor can be selected.”

What happens if someone doesn’t want to be executor?

If someone is named as executor in a will, but doesn’t want the role, they can renounce and have, for example, a trustee company take over. But the decision needs to be made early, before any action is taken by the nominated executor.

“If the chosen executor starts to act in the role – for instance, contacts banks or credit card companies in the role of executor – they are considered to have ‘intermeddled’,” Ms Hacker says.

“Once people have started to take steps to manage the estate, it becomes extremely difficult for them to then renounce the role and, if they do not want to continue as executor, their only option is to apply to the Court to be removed.

“They may then be financially responsible for any losses or expenses that have occurred as a result of any steps they have already taken and their decision to renounce.”

Why choose a professional executor?

Ms Hacker says that while people often think that a professional executor – such as a trustee company or lawyer – will be expensive, it can be a false economy to choose family or friends.

“Increasingly, family members are likely to ask for a payment for acting as executor, particularly if there is conflict and the estate administration is complex,” she says.

“If it’s likely the estate will end up paying someone to act as executor, it’s worth considering whether it’s better to go with a professional executor from the beginning.

“A key advantage is that an independent executor brings impartiality to the table and will act in the best interests of the will-maker and carry out their wishes.

“If the conflict ends up in court, the costs can quickly sky-rocket, and will usually come out of the estate. Managing this with a professional executor can be a much more cost-effective option.”

Five tips to appointing an executor

• Choose someone who will be impartial – if they need to “break up” fights, you need someone who will not take sides.
• There is no need to appoint all children just to “keep the peace” – usually only four executors can be appointed, but it is preferable to have fewer.
• Think of someone who will take advice – many people think they need to choose someone who can do it all, but usually an executor has or will need legal and financial support to fulfil their role, so make sure you choose someone who will be happy to use it.
• Younger is usually better – for practical reasons, you want to at least have back up executors who are likely to live longer than you.
• Talk to your proposed executors – some people really do not want to take on the role and it is important to know that before you finalise your will. They can renounce later but choosing executors who are comfortable taking on the role in the first place is important.

Important information

This information is provided by Australian Unity Trustees Ltd ABN 55 162 061 556, AFSL 483220. Australian Unity Trustees Ltd is a wholly owned subsidiary of Australian Unity Limited. Any advice in this article is general advice only and does not take into account the objectives, financial situation or needs of any particular person. It does not represent legal, tax, or personal advice and should not be relied on as such. You should obtain independent legal, financial or tax advice relevant to your circumstances before making any decisions. Information on this site is intended for Australian residents only and any access to this material via the internet is subject to the Terms and Conditions of Use of our website and our Privacy Policy. Please refer to our Financial Services Guide and Fee Schedule.

Nothing in this article represents an offer or solicitation by Australian Unity Trustees Ltd in relation to securities or investments in any jurisdiction. Where a particular financial product is mentioned, you should consider the Product Disclosure Statement before making any decisions in relation to the product and Australian Unity Trustees Ltd makes no guarantees regarding future performance or in relation to any particular outcome. Whilst every care has been taken in the preparation of this information, it may not remain current after the date on which it is published and Australian Unity Trustees Ltd and its related bodies corporate make no representation as to its accuracy or completeness.