We are fast approaching the end of the financial year. Want to save some tax and boost your retirement savings?
Here are five smart super strategies to consider before the end of the financial year.
Add to your super and claim a tax deduction
If you are eligible to contribute some of your after-tax income or savings into super, you may be eligible to claim a tax deduction. By doing so, you’ll reduce your taxable income for this financial year and potentially pay less tax while at the same time, increasing your super balance.
Depending on your circumstances, your marginal tax rate, which could be up to 47% (including the Medicare Levy), By contributing into super, you effectively change the rate of tax from your marginal tax rate down to 15%, which could save you up to 32%.
Keep in mind that personal deductible contributions count towards the concessional contribution cap, which is $27,500 for the 2021/22 financial year. However, you may be able to contribute more than that without penalty if you didn’t use the whole cap in previous years are eligible to make ‘catch-up’ contributions.
Concessional contributions also include all employer contributions, including super guarantee and salary sacrifice.
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% for those earning under $250,000 pa, compared with up to 47% (including Medicare Levy).
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.
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.
You may be able to get the full offset if you contribute $3,000 and your spouse earns $37,000 or less pa (including their assessable income, reportable fringe benefits and reportable employer super contributions). The tax offset tapers off between $37,000 and $40,000 pa.
Get a super top-up from the Government
If you earn less than $56,112 2021/22 financial year, and at least 10% 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.
The maximum co-contribution is available if you contribute $1,000 and earn $41,112 pa or less. You may receive a lower amount if you contribute less than $1,000 and/or earn between $41,112 and $56,112 pa. Be aware that earnings include assessable income, reportable fringe benefits and reportable employer super contributions.
Convert your savings into super savings
You can 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% that’s paid in super on investment earnings, and you’ll pay no tax once your super turns into its pension phase. This tax rate may be lower than what you’d pay if you held the money in other investments outside super.
The non-concessional contribution cap, which in 2021/22 is $110,000, or up to $330,000 if you meet certain conditions. To use this strategy in 2021/22, your total super balance must have been under $1.7 million on 30 June 2021.
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’.
Work with your Accountant and Financial Planner to see where you can save on the amount of tax you pay. If possible, contribute to super, pay less tax and save for your future.
Call Business Initiatives on 8431 7444 and speak with Matthew or Michael to find out more.