End of financial year - already?

It goes without saying that this year has been like no other - in living memory.

We have gone from a carefree New Year in January 2020 with the promise of all the things we are used to experiencing in everyday, including an Olympic Games in July, to total a lockdown and social isolation.

Who would have thought things could change so quickly?

The amazing thing is that Australians, in the main, have responded to the government’s directives in a cooperative and compliant way. We all want to get out of this COVID-19 mess safely and as soon as possible.

While the Olympics, and even the Federal Budget, might have been postponed to a later date, some things have not changed.

However, the end of the financial year - on 30 June 2020, is not being delayed, postponed, or cancelled!

As we approach the end of the financial year, here are some superannuation contribution strategies you may consider to help you prepare for 2021 and beyond.

1. Check your superannuation contributions

• Check to ensure your employer has been paying super guarantee contributions for you. By now, your employer should have paid contributions for the September and December 2019 quarters, and for March 2020. The contribution rate for 2020 is 9.5% of salary however, for high income earners, the maximum contribution an employer is obliged to make is $5,250.65 each quarter.
• Check your contribution caps. Concessional contributions generally include contributions made by an employer, and personal contributions where a tax deduction will be claimed. The cap for 2020 is $25,000, however some people may be able to bring forward the unused cap from the 2019 financial year – see item 2 below. If it looks like you may exceed your concessional contribution cap, consider reducing the level of additional employer contributions being made, particularly those made under a salary sacrifice arrangement.  Non-concessional contributions are personal contributions made from after-tax income. The cap for 2020 is $100,000, however up to $300,000 may be contributed using the three year bring forward cap. However, if you have a high superannuation balance, or if you have triggered your three year bring forward cap since 1 July 2017, you may be restricted in the amount of non-concessional contributions you can make.

2. Carrying forward the unused portion of your concessional contribution cap from 2019

If your total superannuation balance i(the total of all amounts you held in superannuation at 30 June 2019) was less than $500,000, you are able to carry forward the unused portion of your $25,000 concessional contribution cap from 2018-19 to the 2019-20 financial year.

This may enable you to make concessional contributions of more than $25,000 this financial year. 

3. Extended work test exemption

For those aged from 65 to 74, superannuation contributions can generally only be made if a work test is met in the financial year in which a contribution is to be made. This applies to both personal tax-deductible concessional contributions, and to non-concessional contributions.

The work test is met where a person has been gainfully employed for a period of at least 40 hours, worked within 30 consecutive days, in the financial year.

However, from 1 July 2019 an exception to the work test was introduced.

Where a person had a total superannuation balance of less than $300,000 at the end of the previous financial year (at 30 June 2019) AND they had met the work test in the previous financial year, they may make contributions in the current financial year without having to meet the work test.

This is should not be confused with the 2019 Federal budget announcement to increase the age at which the work test applies, from 65 to 67. This does not take effect until 1 July 2020 and is still subject to legislation being passed.

4. Claiming a tax deduction for personal contributions

Generally, most people are now able to claim a tax deduction for their personal super contributions. This has applied since 1 July 2017.

If intending to claim a personal tax deduction for contributions made in 2019-20, a “notice of intention to claim a tax deduction” must be given to the superannuation fund the contributions were made to, within a certain time.

The be valid, the notice must be given:

• By the date the income tax return for the financial year in which the deduction is being claimed is lodged, or by the end of the following financial year (30 June 2021), whichever is the earlier date, and
• The person claiming the deduction is still a member of the fund, and
• The super fund still holds the contribution – that is, it has not been used to commence a person, or has not been rolled over or withdrawn in part of full, and
• The contribution has not been used, in part or full to commence a pension, and
• The contribution is not a downsizer contribution.

It is amazing that something as simple as contributing to a superannuation fund can be so complicated.

If intending to make contributions this financial year, always consider seeking advice from a financial adviser experienced in superannuation related matters.