Minimising your tax & superannuation tips during Covid-19

With 30 June 2020 rapidly approaching now is the time to consider whether there are any tax-effective strategies that may be applicable to you, as well as the government’s policies available for those impacted by COVID-19.

For those impacted by COVID-19, you may wish to consider the following superannuation assistance:

  1. Early release of superannuation.  If you have been financially affected by COVID-19, you may be able to apply for the release of up to $10,000 from your superannuation fund in the 2019-20 and 2020-21 years.
  1. Reduction in minimum pension annual payments for superannuation income streams.  For many retirees, the losses in financial markets as a result of COVID-19 have had a negative impact on their superannuation pension account balances.  The government has reduced the minimum pension required for account based pensions by 50% for the 2019-20 and 2020-21 financial years.

Superannuation is still the most tax-effective way to save for your retirement

If you are under age 65 and not retired, consider these planning strategies:

  1. Maximise your tax deductible contributions or concessional contributions to superannuation prior to 30 June 2020. These include your employer statutory superannuation contributions, contributions you may have salary sacrificed and personal contributions that you are claiming as a tax deduction. The maximum combined total of the tax deductible contributions for the 2020 financial year is $25,000.

Top up contributions. If you did not maximise your tax deductible superannuation contributions last financial year, you may be eligible to make tax deductible top up contributions in addition to the maximum $25,000 mentioned above. You may qualify for this benefit where your total superannuation balance was below $500,000.

  1. Consider ‘Non Concessional Contributions’. This is where you transfer after tax money from your personal savings account into your superannuation fund. Note that there is a limit of $100,000 per annum but in some cases you may make your 2021 and 2022 non concessional contributions in advance. Note conditions apply to non-concessional contributions. Please seek advice before making these contributions.

The benefit of this strategy is that the earnings on the money transferred to the superannuation fund may be taxed at a lower rate than if it remains in your name.

  1. Consider the government’s superannuation co-contribution when a low to middle income earner makes a personal (after-tax) contribution to their superannuation fund, the government may make a matching contribution (the co-contribution) of up to $500 to their super account on their behalf.

To be eligible for the co-contribution an individual must lodge their income tax return for the relevant financial year and meet certain qualifying criteria based on their age, income, total superannuation balance and total amount of superannuation contributions.

If you are over age 65 or retired consider the following strategies:

  1. Commencing a pension

Where you have a superannuation balance of less than $1.6 million, you may consider taking an account-based pension from your superannuation fund.

Having your superannuation fund in pension stage as opposed to accumulation stage means that the amount of tax payable by the fund will be less.

Note however, to qualify for these tax benefits you need to pay the minimum pension (limits set by the ATO) prior to 30 June 2020 to qualify.

  1. Contributions for spouse

If your superannuation balance exceeds $1.6 million but your spouse’s superannuation balance is significantly less than that limit you may consider withdrawing some of your superannuation and contributing to her member account to reduce your tax. Conditions apply to qualify for this strategy.

  1. Existing pensions

For those who are already in pension stage, ensure you receive your minimum pension payment from your superannuation fund prior to 30 June 2020, otherwise, you will lose your tax benefits. This tax benefit is substantial. Please check your records to ensure compliance with the tax legislation.

These are just some of the many strategies that you need to consider prior to 30 June 2020.

Should you require more information on superannuation and minimising your tax, contact Peter Quinn by submitting an online enquiry or calling us on +61 2 9580 9166. We also offer a FREE 45-minute consultation where you have other financial planning, taxation or superannuation issues you may wish to discuss.