Splitting of Spouse Contributions
Splitting of Spouse contributions is a very effective way to maximise retirement savings while gaining early access to retirement funds. It is suitable to couples with an age difference. Up to 85% of Concessional contributions can be split between husband and wife.
For example – Jean is aged 40, her preservation age is 60. She is married to Jack who is 50 years of age. Jean can split her concessional contributions (salary-sacrifice and SG contribution) to Jack. The funds would then be available through a TtR strategy when Jack turns 55, effectively bringing forward access to these funds by 15 years.
Notice of deductibility
Individuals need to lodge a notice of deductibility (Section 290-170 – Notice) in relation to Concessional contributions made in the financial year. The notice must be lodged by the earlier of the time the individual lodges their income tax return or the end of the following year after the contribution was made. The amount of deduction is limited to the amount specified in the original notice and cannot be increased. It is therefore preferable to overstate the portion of concessional contributions and reduce at a later stage if need be.
Advisers should ensure that the notice has been lodged prior to moving the client into an Account Based pension or rolling them into a new superannuation fund as this would invalidate the notice to claim a deduction.
High Net WorthClients
For this financial year 2009/2010, a new measure has been legislated targeting high net worth individuals. In prior years, business losses could be offset against other income, provided the business met the commercial business tests. These tests are designed to establish the genuineness of a business. From the 1st July 2009, a new income means test must be passed for business losses to be deductible, in addition to the “commercial” business test.
Business losses are not deductible anymore for individuals earning over $250,000 in adjusted taxable income. Adjusted taxable income is defined as taxable income plus reportable fringe benefits plus net investment losses and reportable superannuation contributions.
The losses would only be used when the individual’s income falls below the $250,000 income mark in future years.
Click on the link for more information.
Same-Sex Couples
Same-Sex Legislative changes took effect from 1st July 2009. The definition of spouse has been amended in various tax laws to include a same-sex spouse and will impact on the following areas:
- Tax Offset for Dependant Spouse
- Senior AustralianTax Offset
- Medicare levy Assessment
- Main Residence CGT exemption
- CGT rollover relief on relationship breakdown
Same-sex couples may now benefit from:
- Spouse Super Contributions offset
- Splitting of Concessional Contributions
However Same-sex relationships are now recognized for Centrelink and Family Assistance purposes. This may have some adverse impact on the couple’s finances.
It is imperative that same-sex couples’ financial plans be reviewed in light of the above changes and strategies be put in place to take advantage of the changes while mitigating the reduction in concessions.
New Work Bonus
This replaces the Pension Bonus Scheme which closed on 20 September 2009. Individuals working past the Age Pension age would have 50% of their employment income up to $250 per fortnight excluded under the Income Test.
However the bonus is not available to self-employed pensioners unless they operate under a private trust or company structure. It is worth reviewing the business structure of the self-employed and how they are remunerated and draw funds from their structure.
Centrelink
Why not review all the clients who are on a part-pension? If they are Income Tested, reducing their minimum pension payment to the Centrelink Deduction Amount will enhance their pension.
UK State Pension
From 6 April 2009, certain people will be able to contribute an additional six years of voluntary Class 3 National Insurance contributions (NICs) under new legislation in the Pensions Act 2008. This is over and above those permitted under the current time limits, in order to enhance their basic State Pension entitlement. Find out more by clicking on this link.
It may be worth reviewing all clients who come from the UK!
Expanded “Income” Definition
The legislation in relation to the Expanded “Income” definition is now in force and took effect from 1st July 2009. In a nutshell it widens the definition of income to include salary-sacrifice contributions and net investment losses when working out eligibility for various taxation and superannuation concessions and government benefits.
Areas affected by the changes:
Pension Bonus Scheme is OUT, New Work Bonus is IN
The Pension Bonus Scheme has closed to new entrants on 20/09/09. However those who attain Age Pension age before that date have still a window of opportunity for 13 weeks (from the date they reach pension age) to register under the old scheme.