SMSF members earning high incomes that place them in the top marginal tax bracket should consider making concessional contributions in the current financial year as they will hold greater value than those made when the stage three tax cuts are introduced, according to Heffron.
Heffron managing director Meg Heffron said it would appear the government was still committed to the stage three tax cuts, which will change the bands at which the highest marginal tax rate (MTR) will apply and the size of the difference in that rate and the one charged within superannuation.
“At the moment, we have got clients who are in the territory of paying the top MTR [of 45 per cent] this year, but if the stage three tax cuts come in, they won’t pay that anymore because the cuts will expand the 30 per cent tax rate all the way up to $200,000 [income level],” Heffron said during a presentation at the Heffron Superannuation Intensive Day in Sydney today.
“If you have clients earning between $180,000 and $200,000, their MTR this year is 47 per cent, including the Medicare levy, but next year it is going to be much lower so that means the value of a deduction is much higher this year than it will be next year.”
She said with the highest MTR being 47 per cent and tax within superannuation being 15 per cent, there was a 32 percentage point benefit this year, while next year that will drop to 17 percentage points as those on $200,000 will only have an MTR of 32 per cent, including the Medicare levy.
“Maybe this is the year to think that if someone earns $200,000 and their employer is making contributions that nearly use up their concessional contribution cap, to put an extra $20,000 in there. This will use up the rest of this year’s cap and a little bit of the previous year’s cap and be worth more this year than it will be next year,” she said.
“Somebody earning more than $200,000 will still be on the top MTR either way and someone who’s over $250,000 has to pay the Division 293 tax, which compromises the efficacy of an additional contribution.
“For clients who are in that bracket where they won’t be paying the top MTR next year, this may be the year for them to think about extra concessional contributions.”