As we quickly approach the end of another financial year, we find it a good time to remind our clients of the opportunities available to boost your wealth and reduce the tax that you pay.
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. By claiming a tax deduction, you will reduce your taxable income for the current financial year, paying less tax and boosting your super balance at the same time.
With a legislated reduction to marginal tax rates starting from 1 July, the incentive to make tax deductible contributions into super may be greater for you this financial year.
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 2023-24 financial year. This threshold is being increased from 1 July, to $30,000 per year moving forward.
Carry-forward (catch-up) super contributions – FY18/19 – use it or lose it
When the eligibility criteria have been met and you haven’t fully used up to your previous five years’ worth of concessional threshold available, you are now allowed to contribute to ‘catch up’ and use this cap space.
As this is a five-year rolling financial year period, this year is the first since being introduced where we will lose access to a financial period (2018/19).
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 2023-24, or up to $330,000 if you meet certain conditions. From 1 July, the non-concessional contribution cap is being increased to $120,000 per year moving forward.
Top-up your super with help from the Government
If you earn less than $58,445 in the 2023-24 financial year, and at least 10 per cent of that income is from your job or a business, you might 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 to those who contribute $1,000 and earn $43,445 p.a. or less. You will receive a reduced amount if you contribute less than $1,000 and/or earn between $43,445 and $58,445 for the year.
Boost your spouse’s super and reduce your tax
If your spouse is not working or earns a lower income, you might 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’re 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 for the financial year, the tax offset available will be reduced.
When planning for retirement, superannuation is generally the most effective tool at your disposal. There can be considerations relevant to your personal situation however, so before making any contributions to your super, it is important that 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.
