If you’re nearing retirement any steps to defer income to the subsequent 30 June tax year will be beneficial as your earnings may be lower in subsequent years.
You may also consider salary sacrificing up to the concessional contribution limits of your salary into superannuation, and drawing a tax free-pension as a part of the transition to retirement measures.
For directors that receive a salary from a family company and pay an average rate of income tax greater than 28% there may be an advantage in loaning money from a family company. This money would be repaid over a seven year period under a Div7A loan arrangement.
This can allow a taxpayer access to company funds now while potentially limiting tax on these profits to 30% in the years when the taxpayer is no longer drawing a salary.
If you’re commencing a superannuation pension for the first time, or continuing a superannuation pension, make sure you draw the minimum pension prior to 30 June 2016.
The minimum pension is calculated based on your pension balance as at 1 July 2015 and your age as follows:
55-64 Minimum Drawdown 4% Maximum Drawdown 10% (if using transition to retirement pension)
65-74 Minimum Drawdown 5% Maximum Drawdown No Limit
75-79 Minimum Drawdown 6% Maximum Drawdown No Limit
80-84 Minimum Drawdown 7% Maximum Drawdown No Limit
85-89 Minimum Drawdown 9% Maximum Drawdown No Limit
If you’re over 60 and operate a self-managed superannuation fund, contact us about the strategy for converting your fund into a tax free pension and generate tax free income.