Sam Rubin
Technical

Post Budget 2009 – Strategy tips to use before 30 June 2009

By Sam Rubin

The 2009 Federal Budget did not provide many superannuation surprises, and we were lucky not to lose popular strategies like transition to retirement, negative gearing and salary packaging. However, watch out for the Henry Tax Review as next year’s Federal Budget is expected to announce major tax changes which could affect our tax minimisation strategies.

In the wake of the 2009 Budget, advisers have the chance to provide proactive advice to their clients by discussing opportunities that are only available until 30 June 2009. Some of the strategy opportunities that will soon be lost are detailed below.

1. Concessional contributions of up to $100,000 for members aged 50 and over

Consider the opportunity for clients employed by their companies to pay out a special bonus (if the business can afford it) of up to the $100,000 concessional cap. Remember the superannuation guarantee is included in the cap. Also for this to be valid, this must be an effective salary sacrifice arrangement which means a formal agreement must be established with both parties agreeing to the bonus being contributed into a superannuation fund prior to earning the payment.

2. Personal Concessional Contributions

Discuss with your clients the opportunity to increase their personal superannuation contributions this financial year given the halving of the caps from 1 July 2009.

Generally small and medium enterprise (SME) client super contributions have been limited to the tax deduction the business could utilise, or to how much the accountant determines should be paid. This financial year SME business owners should consider the business’s cash flow and their years from retirement to determine whether they could utilise the $100,000 concession cap.

3. Concessional contribution of $50,000 for members under age 50

Clients who are in their 40s with surplus after tax cash flow (who are comfortable with superannuation and happy to make additional contributions) should consider salary sacrificing to superannuation within their caps until 30 June. Another opportunity is to assess if there is any chance to receive a bonus payment in June rather than July given the tax and overall retirement savings benefits.

4. Utilise non-concessional $150,000 for 2008/09

The Government has not made significant changes to the non-concessional cap except for the method of calculating the cap from 1 July which in turn has eliminated the indexation benefit.

Importantly, if you do not utilise the $150,000 each financial year you will not get it back so if you have clients that are at pre-retirement stage and have assets held outside superannuation (e.g. a share portfolio, especially if in a capital loss position), consider contributing the asset(s) in specie to super.

5. Maximise 150% co-contribution

The Government has announced that the current co-contribution scheme will be reduced in line with the Governments short term measures to decrease the Budget Deficit. From 1 July 2009 the co-contribution rates will be reduced to 100 per cent (for 2009/10, 2010/11 and 2011/12) with a maximum co-contribution of $1000. They will move back up to 150% in 2014/15.

The short-term opportunity for clients is to maximise this benefit by contributing a non-concessional contribution of $1,000 by 30 June 2009 to receive the 150% (and also to secure this benefit for clients who may not be eligible from 1 July 2009 given the changes to the income test).

6. Minimised 50% pension drawdown

The Government has announced it will extend the temporary 50% reduction to the minimum pension drawdown to the next financial year. Clients that are currently receiving a pension should review their cash flow requirements in retirement and determine whether they should reduce their payments to the new minimums now, and not wait until 1 July or another time next financial year.

These strategy opportunities require a speedy response to your clients’ personal circumstances and if they are going to gain from your pro-active advice, you have to do something now as the clock is ticking.

To find out more about how the Federal Budget announcements will affect your client’s financial strategies from 1 July, please also read Damian Hearn’s article in this edition, titled ‘New contribution caps warrant a rethink of retirement savings strategy’.