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Contributing a lump sum into super

Australians can make two types of contributions each year; concessional contributions, which are taxed at 15 per cent, and non-concessional contributions, which are not taxed.

There is a limit of $35,000 for concessional contributions and $180,000 for non-concessional contributions. However, individuals do have the option of using the three-year bring forward rule that allows taxpayers to contribute a lump sum of $540,000 as a non-concessional contribution if they are under the age of 65.

Using the three-year bring forward rule means individuals cannot make extra non-concessional contributions over the next two years.

Individuals that have accumulated a large sum of money from savings, an inheritance or sale of an asset, and want to contribute the amount to their super, may be best suited to making a non-concessional contribution.

Making a non-concessional contribution means you will not have to pay tax and will be able to transfer the whole amount as a lump sum contribution into an SMSF.

However, for those who are expecting more funds in the future, it may be better to put $180,000 into the fund on year, and another $180,000 in the following year.

For those who have sold an asset, you may have a capital gain and have to pay capital gains tax. Maximising your concessional contributions ($35,000 a year) can lower your taxable income for the current financial year and also reduce your capital gains tax liability.

Those with an SMSF who are self-employed can contribute a lump sum of $70,000 to their fund at the end of the financial year. They can also allocate $35,000 this financial year and $35,000 next financial year to reduce their capital gains liability.

Posted on 2 March '16 by , under Super.

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Self-managed super funds (SMSF) aren’t just about financial investment

Individuals may be looking to opt for an SMSF because these provide entire control over where the money is invested. While this sounds enticing, the downside is that they involve a lot more time and effort as all investment is managed by the members/trustees.

Firstly, SMSFs require a lot of on-going investment of time:

  • Aside from the initial set-up, members need to continually research potential investments.
  • It is important to create and follow an investment strategy that will help manage the SMSF – but this will need to be updated regularly depending on the performance of the SMSF.
  • The accounting, record keeping and arranging of audits throughout the year and every year also need to be conducted up to par.

Data shows that SMSF trustees spend an average of 8 hours per month managing their SMSFs. This adds up to more than 100 hours per year and demonstrates that compared to other superannuation methods, is a lot more time occupying.

Secondly, there are set-up and maintenance costs of SMSFs such as tax advice, financial advice, legal advice and hiring an accredited auditor. These costs are difficult to avoid if you want the best out of your SMSF. A statistical review has shown that on average, the operating cost of an SMSF is $6,152. This data is inclusive of deductible and non-deductible expenses such as auditor fee, management and administration expenses etc., but not inclusive of costs such as investment and insurance expenses.

Thirdly, investing in SMSF requires financial and legal knowledge and skill. Trustees should understand the investment market so that they can build and manage a diversified portfolio. Further, when creating an investment strategy, it is important to assess the risk and plan ahead for retirement, which can be difficult if one is not equipped with the necessary knowledge. In terms of legal knowledge, complying with tax, super and other relevant regulations requires a basic level of understanding at the very least. Finally, insurance for fund members also needs to be organised which can be difficult without additional knowledge.
Although SMSFs have the advantage of autonomy when it comes to investing, this comes at a price. Members/trustees need to invest time and money into managing the fund and on top of this, are required to have some financial and legal knowledge to successfully manage the fund.

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