If you are a former employee of the WA State Government and now earn your living through your own business, you’ve probably been enjoying some of the pay-offs of the contributions rules afforded to you as a result of being a member of the GESB West State Super Fund.
If you’re not sure what we're referring to, check out our article >> Last Chance for Self-Employed Members of GESB
As of 1 July 2017 however, there will be substantial changes which means personal contributions to West State and Gold State by a self-employed person will no longer be possible.
The good news is the ability to salary sacrifice contributions into GESB West State account, in excess of the concession cap, which will still be available for employees. But only up to their gross salary…
With GESB, you can capitalise if you’re employed and self-employed
The changes present an opportunity for GESB West State members in WA who are fortunate enough to be able to work both in their own business and undertake paid work as an employee of the WA State Government.
Professions like doctors, engineers and school teachers, and many others may benefit.
In simple terms, if you qualify, you can salary sacrifice your WA state employee income directly into your GESB West State account. That's up to 100% of your earned income.
If this is over the concession contribution cap, which will be $25,000 from 1 July 2017, then this will fully use your cap for the year and no further contributions can be made.
This means that you will not be able to make personal concessional contributions from your self-employed income. If you do, it will cost you tax dollars.
To illustrate this, here is an example.
If you are earning say $80,000 as an employee of the WA State Government and maybe a further $150,000 from self-employed means such as a farm, or professional practice, then under the new rules you have two options.
Strategy 1 – Personal deductible contribution to your own super fund up to $25,000, claim a deduction for the $25,000 and pay tax on your combined income of $205,000
Strategy 2 – Salary sacrifice up to 100% of your earned income from the WA State Government into your GESB West State Super Fund and make no further contribution and pay tax solely on your self-employed income
The difference in the strategies is illustrated below.
As you can see by shifting the focus of contributions back to salary sacrifice, you are able to increase the amount contributed to super and potentially save, in this example, over $13,000 in tax.
A word of caution about GESB super rules
This strategy however, does require some careful planning. As it will not be appropriate for everyone and there are potential tax penalties if contribution rules are breached.
Although the strategy itself cannot be implemented until 1 July 2017, it’s important to know that a salary sacrifice arrangement must be set up in advance with your employer, before the income is actually earned.
In addition, with the way that contributions are actually paid and credited into an account, you need to ensure that your existing strategy and future strategy don’t clash resulting in excess contributions in the new financial year.
Given the complexity of these strategies plus the looming start date of the 1 July 2017 of the super regulation changes, you should consider seeking help soon from our GESB Specialist Team.
To determine whether you situation is appropriate for this strategy >> click here and leave your details and we’ll have a GESB Wealth Specialist contact you.