SMSF Contributions - Strategic Overview

To reduce your tax and make the most of your super deductions pre-30 June set up a complimentary discovery session with Grant Abbott: grant@grantabbott.com

Strategy: Leveraging Contributions Before 30 June

Many SMSF trustees overlook the power of strategic concessional and non-concessional contributions before the financial year-end. The ATO allows concessional contributions up to $30,000 per annum (indexed), thereby reducing taxable income. If you go above that, unless you are using carry forward concessional contributions - there is NO penalty. Instead there is a deferral of income tax payable on the excess concessional contribution at the member's marginal tax rate at the time of lodgement of the SMSF's tax and compliance return in tandem with the member's personal income tax return.

Non-concessional contributions are limited to $120,000 per annum and there are penalties if you excess the NCC cap. However if your total super balance allows, that is you have not hit the TSB of $1.9M for the 2025 income year, consider a bring-forward strategy to contribute up to $360,000 in non-concessional contributions over three years and if you use a contributions suspense account this June it can go as high as $480,000.

Contributions can be payable by the transfer of property or other assets allowed under the Superannuation Industry Supervision Act 1993 - like business real property, listed shares and related party shares and loans less than 5% of the market value of the Funds assets (arms length of course).

📌 Tip: If an SMSF member earns irregular income or books a large capital gain, they can use the carry-forward concessional contributions rule (if their super balance is below $500,000), allowing them to contribute unused concessional caps from the previous five years.

Case Study: Strategic Use of Concessional Contributions and Capital Gains

Background:

• John and Mary, both aged 65, have an SMSF with a balance of $400,000 each.

• They have not made any concessional contributions for the past 7 years, having retired at age 60.

• They recently sold an investment property, realising a net capital gain of $100,000 each after applying the 50% CGT discount.

Concessional Contributions Carry-Forward

Based on the concessional contributions caps for the past years, the couple can potentially utilise the following unused caps:

• 2020–21: $25,000

• 2021–22: $27,500

• 2022–23: $27,500

• 2023–24: $27,500

• 2024–25: $30,000

Total Unused Concessional Cap Available

For each individual, the total unused concessional cap amounts to $137,500 over the past five years.

Strategic Contributions

1. 2024-2025 Financial Year

   • Each individual can contribute up to $100,000 as concessional contributions, utilising the carry-forward rule. This is within their available unused cap of $137,500.

2. 2025-2026 Financial Year

   • They can bring forward the remaining unused cap of $37,500 each into the 2025-2026 financial year, only if their Total Superannuation Balance remains below $500,000 at the end of the 2024-2025 financial year - which is unlikely. However next year's concessional cap is $30,000.

3. Importantly the concessional contributions made during the year will not breach the concessional contributions caps but will be taxable contributions for the trustee of the fund and form part of the Fund's assessable income. From this deductible expenses - such an interest, accounting and audit fees are deducted and tax payable is determined. Any tax offsets against the taxable income may minimise tax payable by the fund.

4. Both John and Mary should start a pension so that income received in the fund (not concessional contributions) is tax exempt.

Recommendation: The couple should consider making the maximum allowable concessional contributions to take advantage of the carry-forward rule, thereby reducing their taxable income and boosting their retirement savings.

Given the complexity and potential tax implications, it is advisable to seek specialised SMSF advice. Contacting Grant at grant@grantabbott.com would ensure they are making the most strategic decisions in line with current legislation.

By strategically utilising concessional contributions, the couple can enhance their SMSF balance and potentially reduce their tax liabilities. Always ensure that the SMSF trust deed allows for these actions and consider the impact on their overall retirement strategy.