Now that we’re already almost six months into this financial year it’s worth evaluating whether you’re making the most of your superannuation contributions.

 

A few basic adjustments to your current super contributions strategy could not only result in income tax savings but also lead to a higher super account balance.

 

You could call December super hump month because we’ll be halfway through the financial year in just a few weeks. That means the opportunities to get more into your super this financial year are shrinking.

 

So, what can you potentially do to get more into your super? Here’s six options.

 

If you don't already have one, start a salary sacrifice plan with your employer to direct some of your pre-tax salary into your super account. To set one up, arrange with your employer for them to pay either a set dollar amount or fixed percentage amount of your pre-tax salary into your super account every payday. As super contributions are only taxed at a 15% rate this will likely mean you pay less tax on your total income. Even small regular extra contribution amounts can add up to significant amounts as your retirement savings compound over time. Keep in mind that any salary sacrifice contributions you make are added to the regular compulsory Superannuation Guarantee payments made by your employer. The annual limit for all concessional contributions is $30,000 and there are tax penalties for exceeding this limit.

 

 

An alternative to an employer salary sacrifice arrangement is to use after-tax money to deposit funds directly into your account. In doing so, you may be able to claim a tax deduction in your next tax return given that concessional contributions are taxed at 15%. However, to claim a deduction, you must complete an Australian Tax Office (ATO) form advising your super fund. You must also receive an acknowledgement from your super fund. Both these things will need to happen before you lodge your next tax return. The same rules apply as for salary sacrifice arrangements. That is, the annual limit for all concessional contributions is $30,000 and tax penalties apply for exceeding this limit.

 

 

You may have another option available that will enable you to get more concessional contributions into your super account before 30 June. You may be allowed to carry over any unused concessional contributions from the previous five financial years. The qualifications are that you must have made concessional contributions in the financial year that exceed the $30,000 annual concessional contributions limit and your total super balance was below $500,000 as at 30 June of the last financial year. You can view and manage your concessional contributions and carry-forward concessional contributions by accessing the ATO’s online services by logging into your myGov website account.

 

 

If you’re expecting to come into some extra money before the end of this financial year, perhaps from the sale of a property or other assets, another option is to keep some of the proceeds aside and direct them into your super as an after-tax contribution. This may suit people closer to retirement age who may want to get more money into their super. After age 60, if you have stopped work and access your super as a pension income stream, your investment earnings and the payments you receive are tax free. A tax deduction can’t be claimed on non-concessional contributions. The non-concessional contributions limit in a single financial year is $120,000. However, under what’s known as the “three-year bring-forward rule”, you may be able to make a $360,000 non-concessional contribution in one financial year. You’re then unable to make further non-concessional contributions for the next three financial years.

 

 

While strictly speaking this option isn’t tied to the financial year, you may be able to contribute up to $300,000 into your super fund using proceeds from selling your principal place of residence if you’re aged 55 or older. Couples can contribute up to $300,000 into their super each. Downsizer contributions form part of the tax-free component in your super fund. It can be made in addition to non-concessional super contributions and doesn’t count towards the annual contributions limit. There are a range of conditions around downsizer contributions, and it’s prudent to check these on the ATO website. Also consider seeking tailored advice from a licensed financial adviser.

 

 

The ATO also allows couples to split up to 85% of their concessional contributions each financial year. Super splitting can be done at any age, but a spouse must be either less than 60 years old (which is known as the preservation age) or aged between 60 and 65 years, and not retired. Couples wanting to split their super contributions first need to check whether their super fund allows it. The full guidelines around contributions splitting, including eligibility and the application form that needs to be completed, are available on the ATO website.

 

 

Consider an adviser
 

Super and retirement planning is a complex area.

 

Take care to understand the contributions types and limits carefully as there are significant tax penalties for exceeding the applicable contributions caps.

 

There are also aged-based limits on contributing into super.

 

If you’re unsure about your super options and need some advice, consider consulting a licensed financial adviser.

 

 

 

 

By Vanguard

December 10
vanguard.com.au