FirstTech – End of Financial Year key considerations

With the end of financial year fast approaching, we wanted to remind you of some key end of financial year considerations which you and your clients may find useful.

1.Last chance to trigger the non-concessional contributions cap bring forward provision forclients who turned 65 during the financial year

The remainder of this financial year is the last time clients who were aged 64 at the beginning of the year will be able to trigger the bring forward provision when making non-concessional contributions (NCC) (if they haven’t done so already). If a client has already reached 65 at the time of making the contribution, they must have satisfied the work test (gainfully employed for at least 40 hours over 30 consecutive days in the current financial year) before contributions can be made.

2.Don’t trigger bring forward provision before 30 June to take advantage of increase in NCCcap from 1 July 2014

Clients who will be age 64 or younger on 1 July 2014 and want to make NCC in excess of $450,000 should hold off trigging the bring forward provision until after the end of this financial year. This is because the NCC cap will increase to $180,000 in the 2014-15 financial year due to indexation (which means a maximum $540,000 under bring forward provision). Clients who trigger the bring forward provision in this financial year will have an effective three year cap of $450,000 and therefore miss out on the indexation that applies to the NCC cap from 1 July.

3.Beware of timing of contributions
The timing of super contributions is important because it determines:

  • whether a client is eligible to contribute to super (eg, for voluntary contributions, hasthe work test been met during the financial year for a client aged 65 to 74)
  • which financial year a tax deduction is available to an eligible client or their employer inrespect of contributions made
  • which financial year’s contributions cap the contribution will count towards

To ensure contributions are ‘made’ in this financial year, it is important that they are received by the client’s super fund no later than 30 June. Where the contribution is made via electronic transfer of funds, a contribution is made when the funds are credited to the super provider’s bank account. For contributions made by cheque, a contribution is generally made when the cheque is received by the client’s super fund.

Note: for contributions cap purposes, while most large super funds allocate contributions to members immediately, some SMSF trustees may allocate contributions to members at a slightly later time than when received by the fund (this has to be done within 28 days from the end of the month in which the contribution is received). For further information about these rules, see the FirstTech SMSF Guide.

4.Take an irregular pension payment before 1 July for Centrelink purposes

Where a client requires additional income from their account based pension but wants to minimise the impact on their Centrelink income test assessment, they may wish to arrange for an additional one-off / irregular pension payment to be made close to the end of this financial year. Clients implementing this strategy have 14 days before they are required to advise Centrelink of the drawdown. When the new Centrelink schedule for the following financial year becomes available the client should also supply it to Centrelink. Should this take place within the last few days of the financial year there can be little or no impact on the client’s Centrelink entitlement.

5.Make sure SMSF clients have drawn at least the minimum pension payment from theiraccount based pension

SMSF clients must ensure that they pay account based pension members at least the required minimum pension payment before the end of the financial year to avoid losing the tax exemption that applies to income and capital gains generated on assets supporting the pension. Note, pension payments cannot be made via an in specie transfer of assets.

6.Spouse contribution splitting

Clients who wish to split up to 85% of the concessional contributions made during the 2012-13 financial year to their spouse must make sure their splitting request is submitted to their super fund by 30 June 2014.

7.Lodge intent to claim deduction notice/variation notice

Clients who wish to claim a tax deduction on their personal super contributions must make sure they lodge a valid notice of intent to claim a tax deduction within allowable timeframes. Failure to do so will mean that the client is ineligible to claim a tax-deduction for their contribution. A deduction notice that relates to contributions made in the 2012-13 financial year must be submitted to the trustee by no later than 30 June 2014 (or the date the client has lodged their income tax return for that year, if earlier). Furthermore, a prior notice relating to contributions made in the 2012-13 financial year can be varied (but only to reduce the amount claimed) within this same timeframe.

It’s also important to note that any deduction notice or variation will be invalid in certain circumstances, including where the trustee had begun to pay an income stream based in whole or part on the contribution. Please refer to chapter 2 of the FirstTech Super Guide for a detailed explanation of when a deduction notice or variation is valid or invalid.

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