As we move into the start of the fourth quarter of the financial year, it is timely that we turn our mind to tax planning and the things we need to be considering as 30 June looms ahead.
Firstly, you need to be very mindful of the correct timing of superannuation contributions. Every year we hear stories of people who made contributions to super, only to find out – too late – their contribution wasn’t made in time.
You would think that in this modern age of electronic transactions, making a super contribution by way of electronic transfer or BPAY would be pretty straightforward. Sadly, that is not the case.
Getting the timing of contributions right can be a real case of ‘hit and miss’, particularly if contributions aren’t being made until close to the end of the financial year.
Let’s assume that I plan to make a personal contribution to super. On top of that, I intend to claim a tax deduction for my contribution in the current financial year.
Being like most people, I will leave it to the very last minute and on 29 June I will go online and transfer the contribution from my bank account to my super fund. I will use their BPAY code for the payment.
It is all so simple – what could possibly go wrong?
Well, unfortunately, there is a number of things that could cause my plans to be derailed.
- When making a super contribution by way of electronic funds transfer, the contribution is not deemed to be made until it appears in my super fund’s bank account. If I initiate the transfer on 29 June 2018 (a Friday), it may not appear in my super fund’s bank account until early in the following week – around 2 or 3 July.
- As my contribution was not technically received by my super fund until early July, it is unlikely I will be able to claim a tax deduction for my contribution until the 2018-19 financial year. This may result in me paying more tax than planned this year.
- My contribution will be counted against my contribution cap for the 2018-19 financial year. While this may generally be fine, it can create an undesirable outcome if I have also planned to maximise my contributions in the 2018-19 year.
- What if I have turned 65 in the 2017-18 financial year and had retired at some point during the year. As I am now 65, I will need to meet the work test (be gainfully employed for at least 40 hours worked within a period of 30 consecutive days) for my super fund to be able to accept my (2018-19) contribution. Being ‘employed’ by my kids to do some home maintenance, or baby-sitting for them is unlikely to meet the test!
- Even if I wasn’t intending to claim a tax deduction for my contributions, but instead I wanted to maximise my non-concessional contributions, not having made my 2017-18 contribution in time will have similar ramifications, particularly where I intended to maximise contributions both this year and next.
Making contributions on time is so important when looking to maximise contributions, make contributions while we are still able, and being able to claim a personal tax deduction.
As 30 June falls on a Saturday this year, planning ahead is so important.
Where possible make your super contributions early so there is plenty of time for it to be received. Sadly, we have seen cases where contributions made at the last minute to the wrong BPAY number have resulted in the contribution not being received by the super fund in time.1