With the end of another Financial Year fast approaching it’s time to get your finances in order. It is also a great opportunity to use your super to boost your wealth and save money on tax. Here we will discuss some smart super strategies to consider before the end of the financial year.
Tax-deductible super contributions
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 will reduce your taxable income for this financial year, potentially pay less tax, and boost your super balance all at the same time.
The contribution is generally taxed at 15 per cent in the fund. Depending on your circumstances, this rate may be lower compared to your marginal tax rate, which could be up to 47 per cent (including Medicare). Therefore, you could save up to 32 per cent in tax.
Once you’ve made the contribution you will need to notify your super fund of your intention to claim the contribution as a tax deduction by completing a Notice of Intent to Claim form. You then need to ensure you receive an acknowledgement from your super fund before you complete your tax return, start a pension, withdraw or rollover your super.
It is important to be aware that personal deductible contributions count towards the concessional contribution cap, which is $27,500 for the 2021/22 financial year.
Convert your personal savings into super savings
Another way to invest more in your super is to use some of your after-tax income or savings to make a personal non-concessional contribution.
Although these contributions do not reduce your taxable income for the year, you can still benefit from the low tax rate of up to 15 per cent that is paid in super on investment earnings. This tax rate may be lower than what you would pay if you held the money in other investments outside super.
Before you consider this strategy, ensure the contribution does not push you over the non‑concessional contribution cap, which is $110,000 in 2021/22, or up to $330,000 if you meet certain conditions.
Top-up your super with help from the Government
If you earn less than $56,112 in the 2021/22 financial year, and at least 10 per cent of that income is from your job or a business, you may consider making an after-tax super contribution. If you do, the Government will make a ‘co-contribution’ of up to $500 into your super account.
The maximum co-contribution is available if you contribute $1,000 and earn $41,112 pa or less. You will receive a reduced amount if you contribute less than $1,000 and/or earn between $41,112 and $56,112 pa.
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 to their super account. This strategy could potentially benefit you both, as your spouse’s super account gets a boost and you could qualify for a tax offset of up to $540.
You are eligible to get the full offset if you contribute $3,000 and your spouse earns $37,000 or less pa, which includes their assessable income, reportable fringe benefits and reportable employer super contributions.
If you contribute less than $3,000, and/or your spouse earns between $37,000 and $40,000 pa the tax offset available will be reduced.
There is no doubt that Superannuation is one of the most effective ways to save for your retirement. Employing some of these strategies before you retire can have a really positive impact on your super balance, while also saving you money now. Before making any contributions to your super, it is important you understand all the associated rules, benefits, and consequences to ensure it’s right for you. A financial adviser will be able to guide you through these strategies and give you confidence in your decision making.
Information in this article is of a general nature only and has not been tailored to your personal circumstances. Information in this article reflects our understanding of relevant regulatory requirements and laws etc as at the date of issue, which may be subject to change. Please seek personal advice prior to acting on this information.
Partner & Financial Adviser, Elevate Wealth