Use it or lose it!

Superannuation offers a tax effective environment - earnings are taxed up to 15% and income generated from super for those 60 and over is tax free. It's not surprising therefore that many pre-retirees are looking for opportunities to move capital via non-concessional contributions.

Non-concessional contributions are often called ‘after-tax’ contributions and there are annual limits on the amount of money you can get into the tax effective super environment. For the 20/15 tax year, this limit is $180,000.

Non-Concessional contributions include:

• personal after-tax contributions
• spouse contributions (count towards the receiving spouse’s limit)
• small business sale proceeds above the lifetime CGT cap
• some components transferred from overseas superannuation funds
• contributions that exceeded the concessional contribution cap.

• government co-contributions
• certain proceeds from an injury settlement that resulted in permanent disablement
• certain proceeds from the disposal of assets that qualify for the small business capital gains tax exemptions.

Things to be aware of

There are some key implications to be aware of if considering this strategy:

• Any concessional contributions you make over the cap will be taxed at your marginal tax rate. You may also incur interest for the increase in your income tax liability. You will however be entitled to an offset equivalent to 15% of the excess concessional contribution (which is not refundable). You can elect to have up to 85% of excess contributions refunded from super – any amounts not refunded will count towards your non-concessional contribution cap.
• Employer Superannuation guarantee contributions also contribute to your cap so you need to take them into account when working out how much to sacrifice.
• It’s important to remember you generally can’t access your super money until you reach preservation age – generally age 60 – and permanently retire from the workforce.
• You cannot salary sacrifice bonus or commission payments after they have been earned.
• Individuals with combined income and super contributions of more than $300,000 may incur an additional 15% tax on concessional contributions.

An extra $5,000 per annum threshold for aged over 49

The appeal of pre-tax super contributions for your lifestage is that they are taxed at just 15% for up to a total of $35,000 (for the 2015/2016 year) if you’re aged 49 years or older on the 30 June 2015. So, if your taxable income is more than $80,000 annually your personal tax rate is at least 37% (based on the 2015/2015 Personal Tax rates for residents). It's important to note that the annual concessional cap for those aged 48 and under is only (based on the 2015/15 tax year).

So in this case, and for higher income earners, making pre-tax super contributions means that a greater proportion of your money goes into your nest egg than in tax.

Things to be aware of

There are some key implications to be aware of if considering this strategy:

• Any concessional contributions you make over the cap will be taxed at your marginal tax rate. You may also incur interest for the increase in your income tax liability. You will however be entitled to an offset equivalent to 15% of the excess concessional contribution (which is not refundable). You can elect to have up to 85% of excess contributions refunded from super – any amounts not refunded will count towards your non-concessional contribution cap.
• Employer Superannuation guarantee contributions also contribute to your cap so you need to take them into account when working out how much to sacrifice.
• It’s important to remember you generally can’t access your super money until you reach preservation age – generally age 60 – and permanently retire from the workforce.
• You cannot salary sacrifice bonus or commission payments after they have been earned.
• Individuals with combined income and super contributions of more than $300,000 may incur an additional 15% tax on concessional contributions.

Is a Transition to Retirement Strategy Right For You?

If you’re starting to think about life after work, then it may be time to think about reviewing your super and taking the opportunity to build up your retirement savings.

If you are 55-plus, you can access your super when you haven't retired if you choose to start a transition-to-retirement-pension (TRIP). Although super benefits are not generally tax-free between the ages of 55 and 60, you can still take advantage of a tax-free threshold when taking a superannuation lump sum, and a 15% tax offset when taking a superannuation income stream (pension). A Transition to Retirement strategy could help you boost your super savings without cutting back on your lifestyle. It could even allow you to reduce your hours at work and
supplement your reduced salary with income from your super.

1) Supercharge your super without changing your lifestyle
You continue to work full time, make salary sacrifice contributions to your super and top-up your reduced
salary with income from a Transition to Retirement Pension.

Your salary sacrifice super contributions are taxed at 15% instead of your individual income tax rate (as
long as all your concessional contributions fall within the current cap and your ‘income’ is below
$300,0001). In most instances your Transition to Retirement Pension is taxed more favourably than salary and wages. This means you could potentially contribute more to super than you withdraw while keeping your after tax income the same.

• Tax concessions – if you’re between preservation age and 59, your Transition to Retirement Pension income is eligible for a 15% tax offset
• Tax-free income – if you’re aged 60 or over, your Transition to Retirement Pension income is tax-free
• Tax-free investment earnings – the assets backing your Transition to Retirement Pension generate tax-free investment earnings, which would otherwise have been taxed at up to 15%.

Before commencing a Transition to Retirement Pension there are a few things you should consider:

• You need to have reached your preservation age, which is between 55 and 60 depending on your date of birth, before you can commence a Transition to Retirement Pension.
• You can only draw down income within minimum and maximum limits prescribed by the government.
• You cannot make lump sum withdrawals from your Transition to Retirement Pension until your retirement or reaching age 65.
• If you salary sacrifice too much you may end up paying additional tax which could wipe out the benefits of the strategy.