Today, Stefan and Tom discuss the different ways of getting money into super, the limits on these contributions and which is advantageous depending on your financial situation.
The right contribution in the right amount and executed at the right time can maximise your use of superannuation as a savings and investment vehicle. While the wrong contribution can lead to pesky letters form the ATO (booooo!).
If you are interested in exploring this for yourself or just want to confirm your own eligibility to contribute, reach out to us using the contact details below. If you would like further discussions on anything financial, please contact us at [email protected]
OR
Click on the link linktr.ee/angeladvisory.aus
#financialplanning#superannuation#CC#NCC
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Tom Gleeson
G'day, everyone. Welcome to another installment of the Real Wealth podcast. Stefan Angelini, thanks for joining us.
Stefan Angelini
Hi!
Tom Gleeson
My name is Tom. Welcome to you, wherever you're listening at home, on the train, wherever you happen to be. Today, we're going to look at super contributions. So broadly speaking, how we get money into super, different ways we can do that. So concessional, non concessional, and what we call other or miscellaneous and before we do that, two things. The first is knocking out the disclaimer.
Stefan Angelini
Love a disclaimer. Just let you know that this is all general information, please don't consider it as personal advice. If you want any personal advice, please go and consult your licensed financial advisor. If you're watching this and if it's pre 30 June, then you might want to act and go and see someone to see how making super contributions can work for you because it's a massive tax planning tool.
Tom Gleeson
Yeah, so hit us up.
Stefan Angelini
The reason we love super?
Tom Gleeson
Yeah. The second point, much more interesting, why we love Super.
Stefan Angelini
We love super because it's so exciting and there's so many rules and restrictions around it. Because it's tax effective. Because what? Max tax rates, 15%. The government wants to make it max tax rate by 30%, but really it's really one environment where you can pay no tax on a lot of your earnings. So if you got up to now, it's a balance of 1.9 million super, and you're in what's called pension phase, tax-free earnings. That's what we love.
Tom Gleeson
Do you find there's a lot of... I think you just did it then, a lot of box ticking, like checking eligibility, checking people meet certain criteria in order to access lower tax rates, no tax, access funds at all, that you're constantly checking, ticking boxes, etc?
Stefan Angelini
Yeah. If you don't tick the boxes, you can't use the rules. Especially for the new rules that are being introduced. It used to be pretty easy. You could have as much as you want in pension phase. The rules were pretty restricted on what you could do. But now the rules are expanded. How much you can have in pension phase is reduced. So yeah, that box ticking and going on the ATO website and finding where to tick those boxes is.
Tom Gleeson
More important.
Stefan Angelini
More important. Yeah. So you can get it wrong.
Tom Gleeson
Yeah. When you talk about when things were a bit loose and less restricted, was that superannuation in its infancy, still in its early days, it was pretty much fair game, and it's since been tweaked.
Stefan Angelini
Yeah.
Tom Gleeson
So over the decades.
Stefan Angelini
What do we talk about of the day? So the government is always tweaking it. So they said, This is super. This is great. Everyone needs it. And then they've gone, Oh, this is too good.
Tom Gleeson
Do you mean what we talked about on the podcast or just in the office?
Stefan Angelini
No, just in the office.
Tom Gleeson
Yeah. So the thing that I brought up was like, How come? So super is brought in because we've got an aging population, baby boomers, etc. The government looking ahead go, We don't want to be responsible for funding your retirement. Therefore, there's going to be compulsory saving your money, but it goes into your super and you can only access it under these conditions. Then after 30 less than 30 years, they turn around and go, Too much in super? I don't know about that. It's like, This was your idea. So now they're taxing more in super and obviously there going, Can they figure out? Do they want less? Do they want more? Whatever. But you had a pretty good read of it is... Well, do you want me to paraphrase it or do you want me to just say?
Stefan Angelini
I think you should do it.
Tom Gleeson
Let me try. It's like 30 years is not old. It's a relatively new concept and they need to tweak it because they can implement superannuation and implement, okay, let's kick it off at 8% or something. Or it wasn't compulsory for all industries. Anyway, over time, they don't know how it's going to play out. No one does. No one's predicting the future. So they watch it play out and they go, Okay, we had some tax concessions. People have smashed money into super and we need to just pull the breaks a little bit because that's excessive.
Stefan Angelini
Yeah. Well, some of the biggest properly held super funds by private families have hundreds of millions of dollars in it. Imagine eventually, yeah, that used to be tax free. Now they're just saying, Well, we've got to take some tax on it. But anyway, that happens. How do we make super contributions? What are super contributions and what are the different types you can make? This is just a really full on education session on how do you get money into super and what caps thing to watch out for.
Tom Gleeson
Yeah, cool. We touched on it earlier, the ways to get money into super are referred to as concessional contributions, non concessional contributions, and then broadly, other, which we'll get to at the end. Let's go for concessional.
Stefan Angelini
Concessional. The main thing we love about concessional is that's a tax deductible contribution. Some people might say, That's my SGC. That's what my employer puts in on my behalf. That might be salary sacrifice. Or it's any extra contribution I want to put in that I can then claim back on my tax return as a tax deduction. That's essentially what a concessional contribution is.
Tom Gleeson
Everyone would be familiar with their employer superannuation guarantee. Those payments have to go in. Some people would be familiar with salary sacrifice because that's a choice that you make whether you want to do it or not. But it's another way of getting money to supervise concessional contributions. Then I suppose another one that I think is worth touching on is the claim back. If you have unused concessional contributions, can you check my numbers here? Because I think it's the previous five years.
Stefan Angelini
Yeah. It is five.
Tom Gleeson
Previous five. So if you didn't max out... Sorry, let me go back. The cap on concessional contributions.
Stefan Angelini
Okay. So the cap this year is like $27,500. And a few years ago, it was $25,000. So that means you could put in a whole lot, 25 grand, and it would be tax deductible. That's the maximum you could do that. But then this new one came into play.
Tom Gleeson
The claiming back for the previous five years.
Stefan Angelini
Claiming back.
Tom Gleeson
So you look back through the previous five years, noting that a couple of years ago, the cap would have been 25 and it remains that way. Then the changes came in from last financial year it was 27 and a half. And if you didn't use, if you max out those contributions, you can then reach back and essentially fill the cup.
Stefan Angelini
Provided you tick a few boxes.
Tom Gleeson
Yeah. Okay, so let's do some box ticking. Who's in? Who's out?
Stefan Angelini
All right. The main box are always, are you a permanent resident in Australia, I'm pretty sure. But the big one here, it doesn't matter about your age, it just matters about what's your super balance at the start of last financial year. And that's your total super balance amongst all your platforms or all your super funds. If you got eight super funds, good luck. But your balance needs to be less than $500,000 at the end of the previous financial year. If we're in the year 2023 financial year now, at 30 June 2022, you had to have less than 500 grand in your super fund to use this claim back of unused contribution as a rule.
Tom Gleeson
Yep.
Stefan Angelini
Which allows you essentially, if you haven't put in a deductible contribution of $130,000 as at 30 June 2023, then you can put in more. Going all the way back to the year 2018, '19 financial year.
Tom Gleeson
Right.
Stefan Angelini
The way it works is, you claim the tax deduction in the one year. So if you got a massive tax bill now, it's a really lucrative strategy because you get the big offset in the one year. Let's say that people don't want to use it all this year and they roll it over to the next financial year, they can't go back to the year 2018, '19 because five years is 2019, 2020 to 2023, '24, which is the next financial year.
Tom Gleeson
So if you don't use it, those brackets are moving with you. You push it a year, that five year period is coming with you.
Stefan Angelini
Yeah, that's right. But the way it works is like a first in, first out rule. So if you make an extra contribution above your 27, 500 cap this year, it's going to take what you haven't used in the five year ago period, if that makes sense.
Tom Gleeson
They're going to go back to five years ago, not last year.
Stefan Angelini
Yeah. So it's like first in, first out. So first came in contribution that year, and that's what we're going to take from at the start. So it's pretty cool that it rolls with you. But yeah, it's not like a fact that if you don't use it this year, it's all gone. It's not. That can keep rolling.
Tom Gleeson
And the timing of it can be very important.
Stefan Angelini
Timing of it can be.
Tom Gleeson
If you were getting a distribution, if you were getting an inheritance or something, you would use that the previous five years to offset?
Stefan Angelini
Yeah. Because you have cash available in those instances, and you've got to work out when he's going to be my biggest tax year. Is it this financial year? Is it next financial year? And we don't really want to use that cap yet. But yeah, really great strategy that's been introduced now and that we've been using for a few years. But finally, we can use whole five year period, which makes us look super smart when we present it to clients. I love it.
Tom Gleeson
Someone's got to check the boxes. So that brings us to another way to get money into super, non concessional contribution. I suppose looking at how that differs from what we've been through.
Stefan Angelini
You don't get a tax deduction for non concessional contributions, but you can put in more.
Tom Gleeson
Yeah, so completely different caps.
Stefan Angelini
Yeah. We always get asked, why would I do it? If it's not tax deductible, why would I do it? There's two things that benefit. Number one is there's this thing called debt tax when you make a deductible contribution. So when you die and your money goes to an independent, they may pay tax on that, this, cleans that. So it's a non taxable component, which means tax free, they call it. So in the event you die, there'll be no extra tax paid on that money. The second part is you're putting extra money into an investment account, call it that's tax either 15%, or will eventually be taxed at 0%. So you're adding money to a tax effective environment. Why people use a non concessional. So they're the main reason people do these. But then there's yearly caps on it.
Tom Gleeson
Yes.
Stefan Angelini
Similar but different to concessional. You got a yearly cap, which is now 110. Be aware that may change before the end of the financial year. A few years ago, it was 100 grand a year, and then it went to 110. And I've got a feeling for the 2024 financial year, it's going to increase.
Tom Gleeson
Right. But the change will take effect. 1st of July will take effect before then. It'll be just decided before that.
Stefan Angelini
So do not stuff that up. We've seen people stuff that up before.
Tom Gleeson
Yep. As in over contribute.
Stefan Angelini
Yeah.
Tom Gleeson
Did one the other day. So for non concessional contributions, you've been through, why do we do it?
Stefan Angelini
And that was looking at a little bit of the long game. So if you're 50 and you're likely to retire at 60 or shortly after, it's worth going down the non concessional contribution path, because you'll have money soon, it'll be in that super environment where there's minimal or no tax. So it's just having a bit of the awareness of ten years, not a long time. Be able to access it then. And then they also have for non concessional, they have a system where it's sort of forward facing. You can bring forward is that the right terminology? Bring forward rule. Yeah.
Tom Gleeson
So instead of looking back, like you did with the concessional contributions, you're using the cap for that year and the following two years, you can use it all at once. So that would be a $330,000 contribution, and then that wipes you out for the next three years. You've maxed it out, kicks in again following that three year period.
Tom Gleeson
Yeah.
Stefan Angelini
So this year, if you got 110 this year, then you could do $330,000, but you'd use up the next three years. Now, importantly, rules changed from 1 July 2022, saying that if you're over the age of 67, you could only put in the 110 per year. And then they said from 1 July 2022, you can go off and you can put in a whole they use it. You can use that bring forward rule all the way up until you're 74 years old. So it's expanded the amount of people that can make extra contributions to super. So if you're an older Australian and you previously couldn't make extra contributions to super, or you got a super balance there and it's a big taxable component in there and you don't know what it means. You could probably recycle that through using this non concessional rule.
Tom Gleeson
So that is an instance of them slightly loosening the grip on the superannuation bucket, where..
Stefan Angelini
That's it.
Tom Gleeson
They had the cap it. Once you're 65, once you're over 65, you're out. No more of these massive non concessional contributions. They've extended that by nine years. That nine year period captures a lot of people. They're suddenly able to contribute to super. That's an example of them. They're loosening it over here while also tightening it over here. That's it what's required, I suppose.
Stefan Angelini
Yeah, that's right. So people haven't had the opportunity to put in heaps of money into super. Now they've got a chance to put in more importantly, that when you got more than 1.7 million, you can't put these non concessionals in. So you can't just keep adding, even though you got a massive balance. So essentially, what these tax changes did in the past is they said to the people with heaps of money in super, we're going to tax you on it. And they said to the people with not much money in super, we're going to lay you to put in more up to a cap and just to even things out. That's what Australia does, like things to be even. So that's the non concessional.
Tom Gleeson
That's another instance of box ticking or box crossing. Sorry. If your total superannuation balance is over 1.7, which that cap was recently increased, you're out. In terms of this strategy, you're done.
Stefan Angelini
Next ones.
Tom Gleeson
So we've done concessional, done non concessional. Now we want to look at other types. So they're unique and they're sort of I would describe them as one off. Like a downsizers. A one off. That's not a strategy you'd employ every year.
Stefan Angelini
No, that's right. Yeah.
Tom Gleeson
So do you want to go into downsizer or roller exemption first?
Stefan Angelini
Yeah, well, these are both ones you can only use once in your lifetime, I'm pretty sure. Maybe downsize you can use more. I don't know. We'll check. So downsizer it was initially, if you are older than 65 and you sold your house, here's a tick box. Very important tick box. You need to have lived in there for more than ten years. And if you have, then you can make a one off contribution that doesn't affect the other caps into your super.
Tom Gleeson
Yeah.
Stefan Angelini
So any cost..
Tom Gleeson
Sorry,
Stefan Angelini
Above two, I think it was $300,000.
Tom Gleeson
Yes. And still is.
Stefan Angelini
Still is. Okay. That's right. Thank you.
Tom Gleeson
So any cap that we've mentioned previously. This does not relate.
Stefan Angelini
No. Different one, forget those.
Tom Gleeson
It's a free shot, free hit. That's it.
Stefan Angelini
So lived in property for more than ten years. That's like the most important thing. If you don't meet that, you don't meet the rules. You try and put in 300 grand into your super fund, thinking you've done it just because you solved your home, then you're going to get a big slap on the wrist from the ATO. The ATO will say, no, you can't do that. So talk to someone first.
Tom Gleeson
Talk to, I don't know, a licensed financial advisor..
Stefan Angelini
Maybe. Maybe, who can tick the boxes anyway, so I guess why would people want to use a downsizer when they're getting cash from their home? Well, if they don't need the cash because they're maybe downsizing their home. So if they're buying a cheaper home, then they want to put extra money to super. Because the tax effective environment to investor happy days can help fund your retirement tax free way or tax effective way. Second, what if people are paying more for a next home or if they are paying the same amount? We see that all the time. It still allows you to use strategies to clean things up. So for instance, if you're using all the money you're getting from the sale to go and buy a new place, why can't you still use that rule to do a recycling strategy to clean out those debt taxes? I said before. So there's still opportunities to use it even if you're using all the money for your next property purchase. So just something to think about.
Tom Gleeson
It's called the downsize. It doesn't rule you out if you're not downsizing.
Stefan Angelini
That's right.
Tom Gleeson
No one's going to come around with a tape measure and be like, this is actually the same as the old this is bigger, this one's better.
Stefan Angelini
Exactly. But people are on the misconception that, well, then I can't use it if my house isn't getting smaller.
Tom Gleeson
Yeah, maybe they'll change the name of it. Maybe they want it.
Stefan Angelini
They won't stuck in their way. Yeah, that's right. The next one is very we don't see it often.
Tom Gleeson
Yeah, I'm not super familiar with this one, to be honest. We've seen and done downsizes, but I'm not familiar with this.
Stefan Angelini
We did a rollover exemption. Who was it before? A client of ours that sold tech business. They've gone overseas.
Tom Gleeson
Yeah, okay, sorry. We did too.
Stefan Angelini
So you got to meet small business tax concessions rules. So where this one comes into play is if you're a small business owner and you sell your business and you meet the small business tax concession rules, then you can offset part of this tax or capital gain on your sale of your business and put up to 500 grand into your super fund. And it's not taxed in super, it's not taxed in your personal name, just wipes off some tax, but allows you to put people have a lifetime cap of $500,000.
Tom Gleeson
Yeah. Okay.
Stefan Angelini
So it's amazing if you can use it if you're at an age when you sell a business when you can actually get access to the funds.
Tom Gleeson
Yeah.
Stefan Angelini
Few more boxes to tick in that.
Tom Gleeson
Yeah.
Stefan Angelini
We actually use it for another client we did a restructure for who owns a bookkeeping business.
Tom Gleeson
Did I do that one?
Stefan Angelini
No.
Tom Gleeson
Okay.
Stefan Angelini
There you go. So it's a good one, but it's more for small business owners who have just exited their business or sold parts of their business or restructured. But still a great way to get an extra 500 grand into super.
Tom Gleeson
Yeah,
Stefan Angelini
Or use 500 grand as a strategy at least.
Tom Gleeson
Yeah. So, importantly, for those two that we covered off downsizer and rollover exemption, previous caps don't apply. It's a way to get money in. Just make sure you're ticking the right boxes.
Stefan Angelini
Cool. So concessional non concessional, miscellaneous.
Tom Gleeson
Yeah, more or less.
Stefan Angelini
Great. I can have put that in my proposals.
Tom Gleeson
Yeah.
Stefan Angelini
Miscellaneous strategies are great. All right, well, that was a good little way to unpack it. Hope you enjoyed our little power session on contributions. We love super. We hope you love super, too. Tom super show.
Tom Gleeson
Thank you. Thanks for that finish on a pun. Very good.
Stefan Angelini
All right, guys. Thank you, everyone, for listening. We'll see you at another episode. If you got any feedback for us, we'd love to hear it. So email [email protected] if it's bad, say it about Tom. If it's good, and I say it about me. I'd appreciate that. Okay.
Tom Gleeson
You know I can hear you.
Stefan Angelini
Yes.
Tom Gleeson
Okay.
Stefan Angelini
All right. Thanks a lot. Have a great day. See ya.
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