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A technical expert highlights some of the unique planning considerations for super for the end of the 2022–23 year.
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Technical expert flags EOFY planning tips for super
19 June 2023
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The lead-up to 30 June will be an interesting planning period this year for superannuation with a number of developments happening on 1 July, according to Tim Miller, SMSF technical and education manager at Smarter SMSF.
Contribution considerations
With most SMSFs having now lodged their annual return for the 2021–22 financial year, Mr Miller said total super balances should now be accurate from MyGov point of view.
“That goes a long way with the planning for various contribution strategies,” he said in a recent SMSF Adviser podcast.
The indexation of the transfer balance cap up to $1.9 million on 1 July means some clients will need to think about whether to wait till next year to implement non-concessional contribution strategies, he said.
Currently, only members with total super balances below $1.7 million can make non-concessional contributions. This will increase to $1.9 million next year in line with the indexation of the general transfer balance cap.
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Concessional contributions are also a popular strategy as the end of the financial year approaches, particularly carry forward contributions.
For those eligible to use the strategy, Mr Miller said they are now able to use up to four years of unused concessional contribution cap space.
“So you can really maximise the capacity to make a claim for personal tax deductions,” he stated.
Carry forward contributions can be particularly useful where clients are selling down large investments outside of super with capital gains tax liabilities, according to Mr Miller.
“There may be one off opportunities like that to use the carry forward amount,” he said.
At this time of year there is also opportunity to think about contribution reserving strategies where the client won’t need to use their full cap in the next financial year.
“So, I could potentially bring forward, through a contribution reserving strategy, one year’s or half of one year’s concessional contribution cap to maximise my deduction capabilities this year,” said Mr Miller.
Downsizer contributions may also see increased interest this year as rising interest rates drive greater numbers of people to downsize.
“Many people will genuinely be looking to downsize in order to try and shrink their mortgage,” said Mr Miller.
“With the reduction in eligibility age down to age 55, it’s now also far more relevant. Certainly those in the 55 to 65 age category are more likely to have some level of debt [compared with the over 65s].”
Pension planning
Following the work test changes that came in July last year, Mr Miller said the previous concept of the superannuation life cycle where a member sets up a fund, contributes to it and then retires, has completely changed.
“We’ve now got this period of ultimately 15 years from age 63 to 75 where people will be potentially transitioning to retirement but won’t be in full retirement. They've got the capacity without any work test requirements to be able to contribute alongside commencing pensions,” he said.
With the indexation of the general transfer balance cap on 1 July, Mr Miller said some clients will have the dilemma of deciding whether to delay their pension commencement until 1 July next year to maximise their transfer balance cap.
“If you’re looking at a 1 July pension commencement date and you’re also contemplating other types of contribution strategies in terms of personal deductible contributions, it is important to be aware of the requirement to provide your notice of intent to claim a tax deduction prior to commencing a pension,” he said.
“The nuance between pension commencements and claiming personal deductible contributions is a fairly critical one. Clients that started their pension on 1 June may be thinking about whether they can claim a personal tax deduction but it may be too late if they’ve already nominated 1 June as their pension commencement date.”
It is also vital that accountants and their clients plan for the return of standard minimum pension requirements from next financial year.
“The increase back to the standard minimum pension requirements next year means that cash flow becomes relevant again. We need to make sure that we’re not operating in a 50 per cent reduced environment, we’re operating at 100 per cent pension obligations,” said Mr Miller.
“The dividends or other investments may have been covering our cash flow during the four years of reduced minimums but we may need to actually sell down capital inside the fund to be able to fund pensions.”
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