You may not be aware but the Commissioner of Taxation has told accountants and their superannuation clients that a business or taxpayer member of a superannuation fund can prepay deductible and also after tax contributions into super without penalties. This can reduce tax and at the same time maximise monies invested in a low tax superannuation environment.
In short this means that instead of only contributing, directly or a mix of salary sacrifice and personal deductible contributions that you can claim $55,000 of tax deductions, per person for the year ended 30 June 2024. This is a great year end opportunity to reduce tax and build tax advantaged savings.
How does it work in practice?
Prepayment Case Study
John Smith is aged 45 and his plumbing business has done well this year. John has cash to put into super. He knows that the deductible contributions cap is $27,500 and he plans on making full use of it. One of our lawyers tells John that he can not only make the $27,500 contribution this year but also prepay next years $27,500 concessional contributions cap. John does this in June 2023 and claims $55,000 as a tax deduction. John's accountant includes the $27,500 in the super fund's books as Johns contribution for the 2023 income year and then uses an ATO authorised contributions suspense account to hold the $27,500 over until 2024 income year. This ensures John does not breach, but takes full advantage of the contributions caps in accordance with ATO guidelines.
Please note that this strategy only works in June of each financial year as the time line on a contributions suspense account is a maximum of two months. The strategy can be also used for after tax or non-concessional contributions enabling a member of a super fund to include more than $440,000 non-concessional contributions, subject to certain terms and conditions, in June 2024.
Interested in paying less tax in 2023?
The contributions prepayment strategy can be used by employees with large salaries, sales people with bonuses, beneficiaries of a family trust, any person with a capital gain from the sale of shares, a business or an investment property and anyone up to the age of 75 with taxable income, a self managed super fund and a desire to pay less tax in 2023.
If you would like to see how and the benefits of prepaying super contributions may apply to you, please contact us for a no cost strategy discussion. If it works, then we will do a deep dive on your super and taxes and come back with a quote on the cost of putting the strategy in place and the tax savings - no strings attached. It's up to you if you want to save tax or not.