Smart Super Strategies for this EOFY
Want to help boost your retirement savings while potentially saving on tax? Here are five smart super strategies to consider before the end of the financial year.
Add to your super – and claim a tax deduction
This financial year, there are new rules about who can claim a deduction for personal (after tax) contributions to super.
In the past, you could only claim the deduction if you earned less than 10% of your income from employment. But from 1 July 2017, deductions for personal contributions can also be claimed by employees.
How it works
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.
The contribution is generally taxed at up to 15% in the fund (or up to 30% if a higher income earner). Depending on your circumstances, this is potentially a lower rate than your marginal tax rate, which could be up to 47% (including the Medicare Levy) – which could save you up to 32%.
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 2017/18 financial year (which also includes all employer contributions, including Superannuation Guarantee and salary sacrifice). Penalties may apply if you exceed the cap – so it’s important that you stay within the limits.
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).
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. Remember salary sacrifice contributions count towards your concessional contribution cap, along with any superannuation guarantee contributions from your employer and personal deductible contributions.
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% 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 2018 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, your total super balance must have been under $1.6 million on 30 June 2017.
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 ato.gov.au.
Get a super top-up from the Government
If you earn less than $51,813 in the 2017/18 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.
How it works
The maximum co-contribution is available if you contribute $1,000 and earn $36,813 pa or less. You may receive a lower amount if you contribute less than $1,000 and/or earn between $36,814 and $51,812 pa.
Be aware that earnings include assessable income, reportable fringe benefits and reportable employer super contributions. Other conditions also apply – speak to your financial planner to find out more.
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
The income thresholds increased on 1 July 2017. So now, 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).
A lower tax offset may be available if you contribute less than $3,000, or your spouse earns between $37,001 and $39,999 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 30 June, talk to us. We can help you decide which strategies are appropriate for you.
This information is current as at 08/05/18. This article has been prepared by Heart1Stop, a social media brand owned by Heart Mortgage Services and Heart Financial Advisers. The information contained in this article is an overview or summary only and it should not be considered a comprehensive statement on any matter nor relied upon as such. The views expressed here are not those of Heart1stop, Heart Mortgage Services, Heart Financial Advisers, shareholders, directors or staff and associated contractors and business associates. This article has been prepared without taking into account any person’s objectives, financial situation or needs. Because of this, you should, before acting on any information contained in this article, consider its appropriateness, having regard to your objectives, financial situation or needs. Any taxation information contained in this article is a general statement and should only be used as a guide. It does not constitute taxation advice and is based on current laws and their interpretation. Each individual’s situation may differ, and you should seek independent professional taxation advice on any taxation matters. While the information contained in this article may contain or be based on information obtained from sources believed to be reliable, it may not have been independently verified. Where information contained in this publication contains material provided directly by third parties it is given in good faith and has been derived from sources believed to be accurate at its issue date. It is not the intention of Heart1Stop or Heart Mortgage Services and Heart Financial Advisers that this publication be used as the primary source of readers’ information but as an adjunct to their own resources and training. To the maximum extent permitted by law: no guarantee, representation or warranty is given that any information or advice in this publication is complete, accurate, up to date or fit for any purpose; and no party of Heart1Stop or associated entities as mentioned is in any way liable to you (including for negligence) in respect of any reliance upon such information. This article may also contain links to websites operated by third parties ("Third Parties") who are not related to Heart1Stop. These links are provided for convenience only and do not represent any endorsement or approval by us.