Accountants & Tax Agents

Borrowing to pay super contributions

Self-employed people can consider whether their super contributions ought to be paid by debt. The contribution cap for the 2016/17 financial year for people aged 50 and over is $35,000. For people under 50 the cap is $30,000. If cash flow is a problem you could consider gearing the contributions. This has always been a relevant strategy but becomes even more so as a person approaches 60 as generally there is no tax, or limit, on the amount of the lump sum benefit able to be taken after this age.  So a 59 year old person could can borrow in one year, make the contributions and achieve an immediate tax benefit, and then withdraw from the super fund in the second year to retire the debt.

This strategy boils down to tax deductible debt reduction, and can be a powerful strategy, particularly for those who have left super planning a little late.

For example, a business owner could borrow to pay a $35,000 deductible employer super contribution, pick up a tax break each year and then pay the benefits out, tax free, at age 60 to retire the original borrowing.

Please note:

Borrowing to pay deductible contributions is primarily an investment strategy. As ultimately you have borrowed to buy shares or another investment inside super.  So seek advice

Also, only employer contributions can be geared not personal. Interest on borrowings incurred in connection with non-concessional contributions or personal contributions is not deductible.

Interest on borrowings by an employer to pay concessional super contributions for employees is deductible under the general deduction rules.

General info only, you should get advice about your specific circumstances.

Tax Tip

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Share 16 June at 15:22 from atlas

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