| Double The Gain |
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The strategy:To double up on this year's tax-deductible super contributions.Can I do that? If you have more than one source of income, you may be able to. This strategy is particularly useful for people nearing retirement who have multiple company directorships or contract their services to several employers but it doesn't work for most ordinary employees. It helps too if you're earning big bucks and can afford to make big contributions to super. So how does it work? The current age-based limits on super contributions apply to employers, not their employees. So a person who is employed by several unrelated employers (the rules prohibit associated companies from doubling up) can ask each of their employers to sacrifice up to the age-based limit. A typical example where this might work is the case of a doctor who works in a hospital and is also employed by an unincorporated medical practice. He could ask each employer to sacrifice up to his age-based limit ($105,113 if he's 50 or older), giving him a pre-tax super contribution of more than $210,000. The age-based limits also apply to substantially self-employed people and other "eligible persons", as they're referred to in the tax laws. To fit into this group, you need to earn less than 10 percent of your income (including reportable fringe benefits) as an employee in the financial year. These people can claim a full tax deduction on the first $5,000 contributed to super, plus 75 per cent of any excess up to the age-based limits. For a person 50 or older this means they can contribute $138,484 and claim the maximum $105,113 deduction. There may also be opportunities for these people to double their deductible contributions, particularly if they own their own companies and can structure their income to meet the 10 per cent rule. For example, a 53 year old who has $150,000 in assessable income in the form of salary and dividends from his own company. As long as the income received as salary is less than $15,000, the company can contribute up to $105,113 pre-tax on his behalf and he can contribute a further $138,484 as a personal deductible contribution. In this case, the employee and employer are not subject to an associate test. There may also be opportunities to salary-sacrifice to meet the 10 per cent rule. Another way to meet the rule is to look at ways of boosting your total assessable income - such as by receiving extra distributions from a company or trust or crystallising a capital gain. Is this legal? Questions have been raised as to whether the strategy falls foul of the anti-avoidance provisions of the Tax Act. If you undertake the strategy with the objective of doubling your tax deductions, it could be an issue. However, most people use this strategy to boost their super benefits pre-retirement rather than seeking a tax advantage. With new limits on undeducted super contributions applying from last May, there's even more incentive to use this strategy to build up super pre-retirement. However, anyone contemplating the strategy should get individual tax advice from Advantage One first. Will the strategy still work under the proposed new Super rules? Not as well. The Government's proposals put a $50,000 cap on deductible contributions (with a transitional $100,000 cap for the 50-pluses for five years). As the plan is currently worded, that cap will include compulsory super, salary sacrifice and self-employed contributions. Deductible contributions above that cap will be taxed at the top marginal rate on entry to the Fund, though it appears they still will be deductible to the contributor. Final details are still to be released, though it appears this strategy will be less attractive next year, and higher earners who are eligible may still choose to use the strategy and pay the higher contributions tax to build up their super. Tony Martin - Director Strategic Financial Coach |
+ 61 8 8333 1944
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