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The start of a new financial year is a good time to think about how you could grow your super by taking advantage of tax concessions. Here are some options you could consider to help reduce your taxable income while boosting your super.
You may be eligible to claim a tax deduction for your personal super contributions. That is, any additional money you contribute to your super on top of what your employer is already paying on your behalf. By doing this, you may be able to pay less tax while saving more for your future.
Your age, sources of income and contributions made will affect your eligibility to claim a tax deduction. You must also give a notice to the Trustee of your super fund and have it acknowledged.
Keep in mind that personal deductible contributions count towards your annual before-tax contributions cap. The current before-tax contributions cap is $25,000 per financial year. Any contributions made above these limits will be subject to additional tax.
Salary sacrifice is an arrangement where you agree to contribute part of your before-tax income into your super. This could be an effective way to boost your super and take advantage of tax benefits depending on how much you earn.
To get started, do a budget to work out how much you can afford to contribute to your super from each pay packet. You may also consider talking to your employer to find out if they can set up salary sacrifice arrangements for you.
Keep in mind that salary sacrifice contributions count towards your annual before-tax contributions cap of $25,000 per financial year. Personal deductible contributions and contributions made by your employer also count towards your annual before-tax contributions cap.
After-tax super contributions are made from money you have already paid income tax on and won’t be claiming a tax deduction on.
Investment earnings within your super accumulation account are taxed at up to 15%, compared to your marginal tax rate which applies to investments you may hold outside of super. Please note that depending on your income level, your marginal tax rate may be less than 15%.
The annual limit for after-tax contributions is currently $100,000 if your total superannuation balance is below $1.6 million at the start of the financial year. If you are under the age of 65, you may be able to bring forward three years of after-tax contributions into one year, contributing up to $300,000, if you haven’t triggered the rule in the previous two years and your total superannuation balance is below $1.4 million at the start of the financial year. You may still be able to contribute part of the bring-forward if your total superannuation balance is between $1.4 million and $1.5 million at the start of the financial year.
If you are a middle to low income earner, adding to your super from after-tax money could see you entitled to a government co-contribution worth up to $500.
To be eligible, you need to earn less than $52,697 in the 2018/19 financial year and be aged below 71 at 30 June 2019. You must also have a total super balance of less than $1.6 million at the start of the financial year.
The maximum co-contribution of $500 is available if you earn less than $37,697 in the 2018/19 financial year and if you have made a contribution yourself of at least $1,000. The co-contribution steadily reduces as your income rises and until it reaches zero at an annual income of $52,697.
If your spouse or partner’s assessable income is less than $40,000 in a financial year, and you decide to make super contributions on behalf of your spouse, you may be able to claim a tax offset for yourself.
The maximum tax offset available is $540 if your spouse receives $37,000 or less in assessable income in the 2018/19 financial year. The tax offset is progressively reduced until it reaches zero for spouses who earn $40,000 or more in assessable income in a year.
You may be able to make additional contributions to use as a deposit for your first home under the First Home Super Saver Scheme (FHSSS) starting from 1 July 2017, subject to meeting eligibility criteria. Whether using concessional or non-concessional contributions, the total amount of contributions you can withdraw is capped at $15,000 a year (or a maximum of $30,000 in total).
From 1 July 2018, if you are planning on downsizing your family home of ten years or more and are aged 65 or over, you may be able to contribute up to $300,000 ($600,000 for a couple) from the sale proceeds to super. This does not count towards your before or after-tax contribution caps.
As annual limits apply to the amount you can add to your super each year, it is important to consider how much you have already added to your account (or accounts) during the financial year.
EMFS was formed in 2001 originally to service the financial planning needs of the clients of Nexia Edwards Marshall, Chartered Accountants. In addition, we now service clients referred by other accounting firms, lawyers and clients who are not serviced by Nexia Edwards Marshall. We manage funds totalling about $250m on behalf of clients.
Liability limited by a scheme approved under Professional Standards Legislation. Contents of this publication are general of nature and are not intended to be used for decision making purposes. Edwards Marshall Financial Solutions Pty Ltd ABN 45 096 434 842 is an Authorised Representative of Edwards Marshall Advisory Pty Ltd ABN 18 600 878 555. AFS Licence No. 479 792.