Ways To Contribute To Your SMSF

While you are in control of your SMSF, the government has outlined another of policies and laws that need to be followed. There are strict rules around who can contribute, how much can be contributed and under what circumstances.
 
Your age is a factor in this. If you are under 65, you can contribute into your SMSF without very many limitations. Once you are over the age of 65, the rules change. Between the ages of 65 and 75 there are a number of restrictions which become tighter as you get older. Once you reach 75, your SMSF can only accept contributions which are mandated employee contributions; however your employers are not required to make these contributions.
 

Types of contributions

If you want to add money to your SMSF, there are two methods: Concessional contributions and non-concessional contributions.
 
Concessional Contributions: Concessional contributions, also known as before-tax contributions, include your employer’s compulsory Superannuation Guarantee contributions, additional employer contributions, and any salary sacrificed contributions that you arrange for your employer to deduct from your before-tax salary. 
 
Employer Contributions: These are the super payments made by your employer.
 
Salary Sacrifice contributions: These are payments you make, but you make them before you pay tax on them. Instead of receiving the money and paying tax on it at say 30%, it goes straight into your super and you only pay 15%.
 
Personal Contributions when Self Employed: If you are self employed you can make voluntary payments into your SMSF and claim a tax deduction.
 
Non Concessional Contributions: Also known as after-tax contributions and include your payments as well as eligible spouse payments where your spouse makes a payment into your super fund and personal contributions you made to your SMSF where you have not claimed a tax deduction.
 
The ATO has set different rates and thresholds for the amount you can add to your Super Fund. These are known as Contributions Caps.
 
The Concessional Contributions Cap includes employer contributions (inculing salary sacrifice) and personal contributions claimed as a tax deduction by a self-employed person.
 
Currently the contributions cap for concessional contributions is set to $25,000 for individuals aged under 60, and $30,000 for individuals ages 60-65. The ATO has indicated this will remain until June 30 2014 but the limit and age brackets will change from July 1 2014. Visit www.ato.gov.au for the latest updates.
 
The non-concessional contributions cap is the limit on the amount of non-concessional contributions you can make each year before you pay extra tax.
 
The non-concessional contributions cap is six times the amount of the general concessional contributions cap, which is indexed each year. In 2013–14 the non-concessional contributions cap is $150,000. You are allowed to pay up to 3 years' worth of non-concessional contributions in advance.
 

Contributions Tax

Contributions Tax applied to anyone making a contribution into your Super Fund that claims a tax deduction for making the contribution.
 
When someone makes a concessional contribution into your Super Fund it is included and therefore taxed as income of the fund at the rate of 15%. Super Funds are also able to make tax deductions to reduce the tax payable. Non-concessional contributions are tax free for your Super Fund.
 

Using Franking Credits

Fully Franked dividends carry a 30% imputation credit; however the income tax for a Super Fund is 15%. This makes imputation credits a very strong way to reduce the overall tax rate of your fund.  Through the use of imputation credits, you may be able to reduce your tax altogether or even receive a refund. Before implementing a franking credit strategy, it is important to talk to a qualified financial planner first.
 
With all the changes being made, it is important to keep up to date with the latest requirements. Real Wealth is here to help you stay informed and up to date. We do the behind the scenes work for you and present you with the information you need to make informed decisions.
 
Contact Real Wealth today on 1300 725 889 and ask us how we can help you achieve your retirement goals.