With the end of year approaching, there are two absolutely crucial tasks which must be performed in order to avoid trouble. These are:
Check that Contribution Limits are not exceeded. The maximum concessional (i.e. deductible) contribution per person for 2010/11 is $25,000 for individuals aged 18 to 50, and $50,000 for those aged 50 to 74 (the work test must be met after age 65). The maximum non-concessional (i.e. non deductible) contributions are $150,000 p.a. If the individual is 64 or younger, then a $450,000 bring forward of two additional years is available. It is very important to check what contributions have been made in the current and previous two years to be safe. Exceeding the contribution caps could result in excess contribution tax up to 93%
Check Minimum Pension Payments have been made. In the 2010/11 year a 50% reduction to the required minimum applies. The minimum (before the 50% reduction) ranges from 4% for under age 65 to 14% for ages 95 or more. See the reference section of the NetActuary website for the full schedule. If the minimum superannuation pension amount is not physically drawn before 30 June, then the entire Exempt Current Pension Income claim is lost.
While the above two items are the absolute essential, there are a number of other desirable EOY tasks in connection with contributions. These include: considering splitting concessional contributions with spouse for Centrelink or earlier access reasons; making a personal contribution to receive the Government's co-contribution (if eligible); exploring rebates on behalf of a low income earning spouse and in-specie contributions if eligible assets are available.
With pensions that are paid under Transition to Retirement rules, the total drawings must be less than 10% of the capital at year start. The year in which a person turns 60 needs extra consideration with attention given to delaying payments until they are tax free. Thought should also be given to how drawings in 2010/11 will affect Age Pension entitlements in 2011/12.
The NetActuary Team