Super ways to minimise your tax

July,08,2021

Did you know that your super is another tool you could use to reduce your taxes? – with the added benefit of increasing your retirement funds! With all the incentives the government provides to encourage you to increase your super contributions, it is a highly tax-effective investment.

So, what are some ways to maximise these benefits?

1. Maximise your contributions

You can make contributions to your super in two ways:

Concessional contributions: These are the contributions you or your employer make to your super from your pre-tax income. They can arise from sources such as your super guarantee or from salary sacrifice arrangements. A concessional contribution is taxed at 15% regardless of your marginal tax rate, unless your income is more than $250,000, in which case you are taxed an additional 15%.

Another source of concessional contributions is your own post-tax income – if you claim a tax deduction on this contribution in your returns. The maximum cap on these is $25,000 for this financial year (2020/21). Be careful not to go above the max cap as you might be liable to pay additional taxes. If you have not maxed your concessional contributions in the past years, you may be able to increase this year’s maximum. However, certain guidelines apply, so contact our expert agents for personalised advice.

Non-concessional contributions: These are personal contributions made from your post-tax income for which you do not claim an income tax deduction. The maximum cap for the financial year 2020/21 is $100,000 across all super funds you manage. To be eligible for this type of contribution, you must be below the age of 65 and have less than $1.6 million in your fund. Additionally, you could make up to $300,000 per year. However, you will be unable to make any non-concessional contributions to your super for the two upcoming years. Any contributions made over the max cap are taxed at 45% if you choose not to have them refunded into your income. Bottom line: maximising your concessional contributions allows you to reduce your taxable income and only pay 15% tax on these contributions.

2. Get a top-up from the Government

In an effort to help middle to low-income earners, the government will add up to $500 to your super if you earn less than $39,837 and contribute $1000 of your post-tax income. Your total super balance must also be below $1.6 million. The government will co-contribute smaller amounts until it reaches zero once your annual income reaches $54,837.

 

3. Spouse contributions If you earn more than your partner, you can top up their retirement savings by making spouse contributions. An 18% tax offset may be possible on up to $3000 of contributions made to a spouse’s super fund. This $540 offset is possible if your partner’s income is $37,000 or less in the financial year. You may be eligible for a smaller offset until their income reaches $40,000 – at which point you will no longer be eligible for any offsets, but can still contribute to their fund.

4. Invest via your super Any investment earnings made through your super fund are only taxed at a maximum of 15%. Capital gains within your super investments are taxed at 10%. This is a huge reduction from the marginal tax rate you would be charged if these investments were made through your regular income.

However, it is important to note that these earnings cannot be withdrawn from your super until you reach retirement age. If you have that capability, investing through your super presents a great opportunity to maximise your earnings and minimize the taxes you pay. Finally, it is important to note that superannuation rules can be very complex. That is why, our accountants work hand in hand with experienced financial advisers to recommend the best strategy and ensure that you understand and are comfortable with any potential risks you might be taking, as well as the potential rewards. Please seek financial planning advice before deciding on your super contributions.

Disclaimer: Information included in this post is of general nature, it has been prepared without taking into account your specific situation. It is not intended to be and does not constitute financial advice, investment advice, trading advice, or any other advice. You should not make any decision, financial or otherwise, based on any of the information presented here without undertaking independent due diligence and consultation with a professional accountant or financial adviser.

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