Want to help boost your retirement savings while potentially saving on tax? Here are five smart superannuation strategies to consider before the end of the financial year.
1. Add to your super – and claim a tax deduction
If you contribute some of your after-tax income or savings into super, you may be eligible to claim a tax deduction. This means you’ll reduce your taxable income for this financial year – and potentially pay less tax. And at the same time, you’ll be boosting your super balance.
How it works
The contribution is generally taxed at up to 15 per cent in the fund (or up to 30 per cent if you earn $250,000 or more). Depending on your circumstances, this is potentially a lower rate than your marginal tax rate, which could be up to 47 per cent (including the Medicare Levy) – which could save you up to 32 per cent.
Once you’ve made the contribution to your super, you need to send a valid ‘Notice of Intent’ to your super fund and receive an acknowledgement from them, before you complete your tax return, start a pension, or withdraw or rollover the money.
Keep in mind that personal deductible contributions count towards the concessional contribution cap, which is $25,000 for this 2019/20 financial year. Although you may be able to contribute more than that without penalty, if you didn’t use the whole $25,000 cap in 2018/19 and are eligible to make ‘catch-up’ contributions.
People with a total superannuation balance of less than $500,000 will be able to carry forward their unused concessional cap space amounts from July 1, 2018 (some conditions and limits apply).
This means if you don’t use the full amount of your concessional contributions cap in a particular year, you can carry forward the unused amount and take advantage of it up to five years later. Amounts that have not been used after five years will expire. Effectively, unused cap amounts started to accrue on July 1, 2018 and were able to be accessed from July 1, 2019 where they could be contributed to your super for eligible individuals.
Concessional contributions also include all employer contributions, including Superannuation Guarantee and salary sacrifice – speak to your financial adviser to find out more.
2. Get more from your salary or a bonus
If you’re an employee, you may be able to arrange for your employer to direct some of your pre-tax salary or a bonus into your super as a ‘salary sacrifice’ contribution.
Again, you’ll potentially pay less tax on this money than if you received it as take-home pay – generally 15 per cent for those earning under $250,000 pa, compared with up to 47 per cent (including Medicare Levy).
How it works
Ask your employer if they offer salary sacrifice. If they do, it can be a great way to help grow your super tax-effectively because the contributions are made from your pre-tax pay – before you get a chance to spend it on other things.
Remember salary sacrifice contributions count towards your concessional contribution cap, along with any superannuation guarantee contributions from your employer and personal deductible contributions. Also, you may be able to make catch up (extra) contributions if your concessional contributions were less than $25,000 last financial year.
3. Convert your savings into super savings
Another way to invest more in your super is with some of your after-tax income or savings, by making a personal non-concessional contribution. Although these contributions don’t reduce your taxable income for the year, you can still benefit from the low tax rate of up to 15 per cent that’s paid in super on investment earnings. This tax rate may be lower than what you’d pay if you held the money in other investments outside super.
How it works
Before you consider this strategy, make sure you’ll stay under the non-concessional contribution cap, which in 2019/20 is $100,000 – or up to $300,000 if you meet certain conditions. That’s because after-tax contributions count as non-concessional contributions – and penalties apply if you exceed the cap.
Also, to use this strategy in 2019/20, your total super balance must have been under $1.6 million on June 30, 2019.
Remember, once you’ve put any money into your super fund, you won’t be able to access it until you reach preservation age or meet other ‘conditions of release’. For more information, visit the ATO website at www.ato.gov.au
4. Get a super top-up from the Government
If you earn less than $53,564 in the 2019/20 financial year, and at least 10 per cent is from your job or a business, you may want to consider making an after-tax super contribution. If you do, the Government may make a ‘co-contribution’ of up to $500 into your super account.
How it works
The maximum co-contribution is available if you contribute $1000 and earn $38,564 pa or less. You may receive a lower amount if you contribute less than $1000 and/or earn between $38,564 and $53,564 pa.
Be aware that earnings include assessable income, reportable fringe benefits and reportable employer super contributions. Other conditions also apply – your financial adviser can run you through them.
5. Boost your spouse’s super and reduce your tax
If your spouse is not working or earns a low income, you may want to consider making an after-tax contribution into their super account. This strategy could potentially benefit you both: your spouse’s super account gets a boost and you may qualify for a tax offset of up to $540.
How it works
You may be able to get the full offset if you contribute $3000 and your spouse earns $37,000 or less per annum (including their assessable income, reportable fringe benefits and reportable employer super contributions).
A lower tax offset may be available if you contribute less than $3000, or your spouse earns between $37,000 and $40,000 pa.
You’ll need to meet certain eligibility conditions before benefitting from any of these strategies. If you’re thinking about investing more in super before June 30, talk to us. We can help you decide which strategies are appropriate for you.