With the cost of living and interest rates on our minds, it is more important than ever to take advantage of tax planning opportunities in the lead up to June 30. This is also an ideal time to explore ways to boost your superannuation contributions.
Contributing extra funds to your super is always a good thing but one of the most attractive is the opportunity to access tax concessions.
Here are some tips to reduce your donation to the ATO and boost your chances of some additional refunds at tax time:
CONCESSIONAL CONTRIBUTIONS (PERSONAL DEDUCTIBLE CONTRIBUTION)
These are contributions from an individual’s own money that a tax deduction can be claimed for. This works to reduce your taxable income and can reduce your tax liability. The key benefit here is these contributions only attract a 15% tax rate (deducted from your contribution by the super fund), compared to your individual marginal tax rate (MTR). Depending on your taxable income, your MTR could vary from 21% to 47% for higher income earners, making super a great way to reduce your personal tax liability and get some money back into your wallet at tax time.
There is a limit of $27,500 per year and any contributions made by an employer, including salary sacrifice will also count towards this limit. This means it is important to check carefully how much will be contributed for you by your employer before deciding to make extra contributions yourself.
CATCH UP CONTRIBUTIONS (CONCESSIONAL)
If you have a superannuation balance less than $500,000, not only can you make personal deductible contributions up to the $27,500 cap for this financial year, but you can also utilise any unused balance from the previous financial year. This may be great news for middle/higher income earners who are looking to further reduce their tax liability and have additional surplus to contribute to super or simply those who did not take advantage in the year prior. This can also be helpful if you have a higher than usual income this year, such as the capital gain from the sale of an asset. You can access your remaining caps via Mygov if your ATO is linked.
SPOUSE CONTRIBUTIONS
If your spouse (husband, wife, de facto or same-sex partner) is a low-income earner or not working, chances are they’re accumulating little or no super at all to fund their retirement. The good news is, if you’d like to help them by putting money into their super, you might be eligible for a tax offset, while potentially creating additional future planning opportunities for both of you. The receiving spouse’s income must be $37,000 or less for you to qualify for the full tax offset and less than $40,000 for you to receive a partial tax offset. Considering the maximum rebate available is up to $540, this can equate to an 18% return on the investment.
NON-CONCESSIONAL CONTRIBUTIONS
Lastly, if you have exhausted all the above options and have additional funds to contribute, a non-concessional contribution may be, your answer. This is a personal after-tax contribution which is capped at $110,000 per year or $330,000 over 3 years, using the bring forward rule. There is no initial tax concession for this type of contribution however it will add to your tax-free component in your super account and build up your requirement savings in a concessionally taxed environement.
An added benefit for this type of contribution for those earning $56,112 or less is the additional contribution you will receive from the Government (known as the Government Co-Contribution).
Importantly, if you are considering any of these options, contributions should be made prior to 24th June to ensure the fund receives the fund prior to the end of the financial year.
If you would like to learn more, or better understand what the appropriate contribution is for you, please do not hesitate to get in touch.
General Advice Warning: The information provided in this article is general in nature and does not consider your particular investment objectives, financial situation, or insurance needs; we therefore recommend you seek advice tailored to your individual circumstances before making any specific decisions.
Dobbrick Financial Services (Gympie) Pty Ltd ABN 48 931 205 109 and Dobbrick Financial Services (Ipswich) ABN 86 100 184 521 & DFS Oakland ABN 64 340 527 395 and their advisers are authorised representatives of Fortnum Private Wealth Ltd ABN 54 139 889 535 AFSL 357306.
