HEADS UP FOR THE END OF FINANCIAL YEAR
It’s almost June and we’re on the home straight to the finish line for this financial year.
So this is our gentle nudge for some of you who might wish to consider making a contribution to your super fund, perhaps save some tax too!
Here’s the deal… hopefully you’re already well aware that super is simply a tax-effective way to invest money for your future self. It comes with one drawback, and that is you can’t touch it until you retire (and turn 60). But, if you’ve been following Wages to Wealth, you’ll also recognise that this rule is also super’s biggest advantage.
Now, when it comes to the tax advantages, if you’re earning more than $45,000 per annum, then every dollar over this amount up to $135,000 is getting taxed at 32% (i.e. 30% + the 2% Medicare Levy).
Concessional contributions paid to super only get taxed at 15%. So, if you have some savings looking for a long-term home, you can make a contribution to your super and claim a tax deduction. The money going into super gets taxed at 15% and the tax deduction is worth 32% (for those earning $45,000 to $135,000), the net result being a benefit to you of 17%.
If you earn over $135,000, the tax saving benefit grows to 24%, and if you earn over $190,000 it is equal to 32%!
Is this the easiest tax deduction Australians can get? The fact it provides significantly more benefit to higher income earners is perhaps debatable, but we can’t change the rules. Whichever way you dice it, if you earn more than $45,000 per annum, super provides a ‘super’ way to reduce your tax and keep more of your money for your long-term future.
There’s a catch! Because the benefits are so tax-effective, the government puts a cap on how much you can contribute. That cap is $30,000 this financial year. Importantly, the cap also includes your employer contributions of 11.5%, so this has to be factored in.
Here’s an example…
You are on a salary of $85,000 per annum, that means work puts $9,775 this year into your super. Take that away from $30,000 and that leaves $20,225 available to you. Now, many of us won’t have a spare $20,225 to simply add to our super, but anything you can contribute will be more tax-effective than keeping it outside super.
The other thing to make a point of, is that the tax savings are equivalent to an immediate, guaranteed return on that money, being the difference in tax payable. It’s easy money!
So, if you have some savings that can be identified as long-term money that you are willing to put away and invest, then the next few weeks are when it’s time to take action.
Get in touch with your super fund to get the details of how to make the contribution and get them to send you a Notice of Intent to Claim form. Make the contributions, send the form to your super fund, enjoy the tax benefits. It’s a great system just waiting for you to take full advantage of.
NOTE: DO NOT LODGE YOUR TAX RETURN UNTIL YOU CONFIRM YOUR NOTICE OF INTENT TO CLAIM HAS BEEN PROCESSED BY YOUR SUPER FUND.
It’s important to point out that you need to make sure whatever you do is right for you. For example, if you are very young, even though the tax benefits are great, perhaps you don’t want to tie up your savings in a tax vehicle where you won’t be able to access the money until you are at least 60.
So, if this year isn’t the year, just always keep this in the back of your mind, because at some point super is very likely going to the best way for your future self to get ahead financially!
But if you’re a little more advanced in age and the benefits really make sense for you, then one thing to bear in mind is that you can make a lump sum contribution between now and the end of June, but then consider setting up a salary sacrifice arrangement with your employer from July onwards. That way you can drip feed money into super throughout the year and put things on auto-pilot.
If you circle back to the $85,000 example above, it’s simply a case of dividing your available cap by 26 (if you get paid fortnightly). Probably worth leaving a little bit of wiggle room so you don’t find yourself going over the cap.
There’s one last little trick that’s available… it is now possible to access previous years’ unused concessional super caps stretching back five years. To find out if you have any available room under these rules, just log in to your MyGov account, then go to the ATO portal and find the Superannuation section. In there, you’ll be able to see if you have any “carry forward concessional contributions” available. If so, that gives you some additional room to contribute above the $30,000 cap for the financial year. This can be particularly handy if you have perhaps sold a property or some shares and are expecting a capital gains tax bill… best to first have a chat to your accountant in that instance. In order to use this strategy your super balance needed to be less than $500,000 on 1st July 2024.
It constantly amazes us how many people want to talk about investment properties as a way of saving tax, without realising there is far simpler and effective way… the huge tax concessions available on money contributed to super – particularly for higher-income earners.
And before we go, for those of you with your hand up wanting to know about after-tax contributions to super… we’ll cover this next week!
Cheers,
Dan and Dave
