Super Charge Your Super
Looking for smart ways to boost your superannuation? Do so before the end of this financial year to maximise any tax benefits.
Having a superannuation savings strategy not only helps you build wealth for your retirement but it can be an effective tax saving strategy too. Win-win.
Once money is inside your super, it’s taxed at a much lower rate than your personal income or investment income outside of superannuation. In some cases you can tax deduct your super contributions as well.
Boost your superannuation contributions
There are two types of contributions you can make into Superannuation:
- Non-Concessional Contributions (NCC) made with after-tax dollars.
- Concessional (employer or pre-tax dollars – salary sacrifice) contributions.
Non-Concessional Contribution (NCC) Strategies
Super contributions made with after-tax income are known as non-concessional contributions because you don’t receive a tax deduction. However, once your money is inside super, any investment earnings are generally taxed more favourably than earnings outside super, so your savings grow faster.
When you access your super in the future, any non-concessional contributions will be returned to you completely tax-free, either as part of a lump sum payment or over time as part of a pension.
However, there is a limit on the level of non-concessional contributions you can make to your super each financial year. From 1 July 2021, the non-concessional contributions cap is being increased to $110,000, provided your superannuation balance is less than $1.7 million.
If you make contributions above the annual non-concessional contributions cap you may be eligible to automatically gain access to future year caps. This is known as the bring-forward arrangement. It allows you to make extra non-concessional contributions without having to pay extra tax.
Get a super top-up from the Government
If you had a low income year yourself due to COVID or other reasons, you may be eligible for a government co-contribution. The Government will automatically make the maximum co-contribution of up to $500 if you earn less than $39,837 in the 2020-21 financial year and you’ve made an after-tax contribution of at least $1,000. The co-contribution amount reduces as your income rises, reaching zero if your annual income is $54,837.
Make contributions for your spouse
Did your spouse or de facto partner take time out of the workforce to look after children or other family members during lockdowns? If your spouse or partner’s assessable income is less than $40,000 in a financial year, they qualify as a “low income earner” and you can make super contributions on their behalf and potentially claim a tax offset for yourself. There’s an 18 per cent tax offset for contributions up to $3,000, which translates to a maximum tax rebate of $540.
Concessional Contribution (CC) Strategies
Salary Sacrifice into your super
Salary sacrifice sounds like giving part of your salary away, but you end up keeping more of your income in the long term. Why? Because by salary sacrificing through your employer you can reduce tax on your take home income, meaning more for you and less for the ATO.
‘Sacrificing’ part of your pre-tax salary means having your employer re-direct it into your super account. This way you pay tax on the ‘sacrificed’ amount at the concessional rate of 15 per cent instead of the marginal tax rate you might otherwise be on, which for high income earners can be as much as 30%. You can contribute up to $27,500 a year at this concessional rate, including your employer’s 10 per cent super guarantee payments.
The carry-forward rules for unused concessional contributions also allow you to make extra concessional contributions – above the general concessional contributions cap – without having to pay extra tax, by accessing unused concessional cap amounts from previous years. An unused cap amount occurs when the concessional contributions you made in a financial year were less than your general concessional contributions cap. You can find your unused concessional contribution amounts in your My Gov account.
We can set this up for you and help you coordinate the paperwork at the end of the year that needs to go to the superannuation fund.
Other Super Strategies
Make downsizer contributions
If you are aged 65 or over and have sold your home this year, you may be able to make a voluntary downsizer contribution to your super of up to $300,000 using the proceeds from the sale (if it was your main residence). If you are a couple, both people can take advantage of this opportunity, which means up to $600,000 per couple can be contributed toward super. A downsizer contribution doesn’t count towards any of the contribution caps.
Consolidate your super
If you have worked at a variety of places of employment over the years it’s a good idea to rollover all your super accounts into one account. This way you pay less fees.
See information on the ATO website on how to find and claim lost super.
Need help with your superannuation or other financial issues before tax time? Callus anytime on (02) 8268 2900 for an obligation-free chat.
Disclaimer: The information contained in this article is general in nature and does not take into account your personal objectives, financial situation or needs. Please consider whether the information is appropriate to your circumstance before acting on it and, where appropriate, seek professional advice.