- Superannuation year end planning for the 2014/15 Financial Year
The end of the financial year always seems to crop up faster than it should. Understanding what you could do before and after 30 June 2015 can provide the icing on the cake for employees, investors and those in small business.
When it comes to superannuation, make sure you maximise the tax deduction this year or salary sacrifice the right amount so you get the best possible outcome and don’t end up with tax penalties. Also, don’t wait until 30 June to act or you may end up missing the deadline.
Increased tax deductible contributions cap for anyone 50 and above
For anyone who was under 49 on 30 June 2014 the maximum amount of tax deductible contributions that can be made to superannuation without penalty is $30,000.
However, for anyone who is at least 49 or older on 30 June 2014 the maximum amount is $35,000. This includes amounts your employer may make as salary sacrifice, Superannuation Guarantee or you make as personal deductible contributions, if you qualify.
If you are older than 65 you will need to meet a work test to contribute to super in most cases. You need to work for at least 40 hours during 30 consecutive days at any time during this financial year to make tax deductible and non-deductible contributions to super.
Claiming a tax deduction for personal superannuation contributions
If you are self-employed, an investor, in receipt of a pension and receive less than 10% of your income, fringe benefits and other related payments from employment, you may qualify for a personal tax deduction to superannuation.
If you intend to claim a tax deduction make sure you are eligible to claim a tax deduction and seek advice if you are unsure.
You need to notify the fund of the amount you wish to claim as a deduction before the end of the next financial year, that is, before 30 June 2016. Make sure you keep all relevant paperwork to save stress when the time comes to see your accountant or tax agent.
Making after tax contributions to super
You can make after tax contributions to super which could come from your personal savings, transferring personal investments, an inheritance or from the sale of investments.
This financial year the maximum personal after tax contribution is $180,000, however, if you are under 65 you can contribute up to $540,000 over a fixed three year period.
This allows you to make substantial contributions to super and build up your retirement savings.
The way it works is that if you are under 65 and make total after tax contributions of more than $180,000 in a financial year, the bring forward rule is triggered. This allows you to make non-deductible contributions of up to $540,000 in total over a fixed three year period commencing in the year in which you contributed more than $180,000.
However, if you triggered the bring forward rule in 2012-13 or 2013-14 you will be limited to $450,000 of bring forward contributions as the post-tax contribution limit was $150,000 in 2013-14.
Beware of excess contributions tax
Anyone making large superannuation contributions should exercise extreme care for any type of contributions to avoid excess contributions penalties. This can apply to any tax deductible and non-tax deductible contributions made to super.
Even though both excess concessional (tax-deductible) and excess non-concessional (post-tax) contributions can be refunded and taxed at your personal tax rate instead of at a penalty rate, making sure you do not exceed the contribution caps will save you both the money and time of dealing with excess contributions.
If your adjusted income is less than $49,488 you may like to take advantage of the Government co-contribution.
You can do this by making after tax (non-concessional) super contributions before the end of the financial year. For every dollar of contributions that are eligible, the Government contributes 50 cents to your superannuation up to a maximum government co-contribution of $500.
For 2014/15, the maximum government co-contribution is payable for individuals on incomes at or below $34,488 and reduces by 3.33 cents for each dollar above this, cutting out completely once total adjusted income for the year exceeds $49,488.
Drawing superannuation pensions
If you are in pension phase, make sure the minimum pension has been paid to you for this financial year.
By not receiving the required minimum pension, any income earned on your pension investments in your superannuation fund will be taxed at 15% rather than being tax free if the pension rules are met by the fund.
Drawing superannuation lump sums
Once you reach 60 all lump sums from superannuation are tax free.
However, before age 60, any lump sums that include a taxable component can be taxable. The taxable component includes the tax deductible contributions plus any income that has accumulated on your superannuation benefit.
No tax is payable on taxable amounts of up to $185,000, in total, you receive prior to age 60. This amount is indexed annually.
If you are eligible to draw amounts from superannuation you may consider deferring this until after reaching age 60, or until a later financial year, when you may end up paying a lower rate of tax.
- China’s growth rate is slowing and stock market wobbling but no need to worry
China’s GDP growth has slowed from an average of 11% in the decade from 2002 to 2011 to under 7% currently, and further slowing seems likely in 2015-2016.
With market reforms, China could sustain growth of 5-7% for several more years, but there seems little doubt the growth rate will slow further.
As I have commented before, this slowdown in the growth rate is to be expected given how much bigger the Chinese economy has become over the past decade; it is now the 2nd largest after the US. It’s also still experiencing a healthy growth rate compared with the world’s developed economies, like Australia and the US.
Investors naturally worry whether equity prices can keep rising as the economy slows. The Shanghai Composite Index fell 13% last week, the worst week for Chinese equities since the financial crisis of 2008. However, this should be seen in the context of a market that has more than doubled in the past year.
I can’t forecast short term movements but longer term, it’s worth considering that China’s equity market represents less than 3% of the global share index (the MSCI ACWI), compared to 51% for the US.
Hong Kong based economic commentators and fund managers, GaveKal, expect sizeable foreign flows in future years prompted by China’s inclusion in global indices. They say a long bull market in Chinese stocks is likely, driven in part by global portfolio rebalancing.
Investors should be mindful that Asian markets (excluding Japan) are more momentum driven than the US, Australia and Europe because the role of local institutional investors is smaller. Periods of under or out-performance trigger strong flows that amplify the gains in good times and the losses in bad times.
- Net Medical Expenses Tax Offset (NMETO)
The NMETO allows taxpayers to claim a tax offset for out-of-pocket medical expenses incurred above a certain threshold.
In the 2013–14 Federal Budget it was announced and subsequently legislated that the NMETO would be phased out, with transitional provisions for medical expenses relating to disability aids, attendant care or aged care expenses.
From 1 July 2013, taxpayers who received the NMETO in their 2012–13 income tax assessment remained eligible for the offset for the 2013–14 financial year, if they had sufficient eligible out-of-pocket medical expenses.
Similarly, those who receive the tax offset in their 2013–14 income tax assessment continue to be eligible for the offset in 2014–15.
From 2015–16, NMETO will no longer be available with several exceptions.
Transitional provisions apply. NMETO will continue to be available for taxpayers with out-of-pocket medical expenses relating to disability aids, attendant care or aged care expenses until 1 July 2019. The rationale for transitional arrangements for those with a disability or in residential aged care is that by 2019 Disability Care and proposed reforms to the aged care sector are expected to be fully operational.
This newsletter contains general advice. It does not take account of your individual objectives, financial situation or needs. You should consider talking to a financial adviser before making a financial decision.