Boost Your Superannuation and Maximise Tax Benefits
Are you seeking ways to amplify your retirement savings while simultaneously reducing your tax burden? If so, you're in luck! There are numerous avenues available for contributing to your superannuation, tailored to your unique circumstances. Here's one effective method to grow your superannuation and access tax advantages.
Claim Tax Deductions on Personal Superannuation Contributions
When you contribute to your super using after-tax income, known as non-concessional contributions, they count toward your annual non-concessional cap. However, depending on your situation, you may be eligible to claim these contributions as a personal tax deduction. By doing so, these contributions become concessional and count towards your annual concessional cap.
Claiming a tax deduction on personal super contributions is possible until you reach the age of 75. To determine your eligibility for this deduction, you can consult a financial adviser, an accountant, or visit the Australian Taxation Office (ATO) website at www.ato.gov.au.
The concessional contributions cap allows you to contribute up to $27,500 each year. Any unused amounts from previous years automatically carry forward and remain available for up to five financial years. This carry forward provision, known as the carry forward of unused concessional contributions, allows you to leverage previously unused amounts.
You can access any unused concessional contributions in the current financial year if your total super balance on June 30 was below $500,000.
The Tax Concession Advantage
Claiming personal super contributions as a tax deduction can effectively reduce your taxable income, thereby lowering the overall amount of tax you are required to pay. The specific amount saved will vary depending on your individual circumstances.
Furthermore, future earnings within your superannuation are taxed at a rate of only 15%. For instance, if your marginal tax rate is 39% (including Medicare Levy), investing in superannuation can leave you 24% better off and allow you to take advantage of the power of compounding returns.
Monica's Story
To illustrate the benefits, let's consider Monica's situation. Monica earns an annual salary of $80,000, with her employer making 10.5% superannuation guarantee contributions. She also receives $100,000 in net capital gains from selling inherited shares.
To decrease her taxable income, Monica decides to make a $50,000 personal deductible contribution to her superannuation. Her available concessional cap for this financial year is $80,000, taking into account the current year's $27,500 cap and an additional $52,500 of unused concessional contributions carried forward, given her total super balance of $350,000 on June 30, 2022.
Tax Comparison with and without Personal Deductible Contributions
The following table highlights the tax differences Monica would experience based on whether she makes a personal deductible contribution.
After making a $50,000 personal deductible contribution:
Monica contributes $42,500 to her superannuation net of 15% contributions tax ($50,000 - $7,500).
Monica's tax payable reduces by $19,470 ($55,267 minus $35,797).
Spousal Contribution Splitting
Monica also has the option to split a portion of her concessional contributions with her spouse if they are eligible. While the amount she chooses to split continues to count towards her concessional cap, it can help bolster her spouse's retirement savings, particularly if their superannuation balance is currently lower.
Splitting concessional contributions to a spouse can be advantageous in maintaining Monica's total super balance below $500,000, ensuring she can make use of any unused concessional contributions in the future.
In conclusion, contributing to superannuation can lead to greater tax refunds. However, it's important to note that your superannuation funds cannot be accessed until you meet the conditions for release. To determine your eligibility for making personal deductible contributions and assess the suitability of this strategy for your circumstances, we recommend consulting our team of experienced accountants and financial advisers
Important information
This information has been produced by Plus 7 Financial Management ABN 11 211 901 965, Corporate Authorised Representative of Australian Unity Personal Financial Services Ltd (‘AUPFS’) ABN 26 098 725 145, of 271 Spring Street, Melbourne, VIC 3000, AFSL 234459. Any advice in this document is general advice only and does not take into account the objectives, financial situation or needs of any particular person. It does not represent legal, tax, or personal advice and should not be relied on as such. You should obtain financial advice relevant to your circumstances before making investment decisions. Plus 7 Financial Management are registered tax (financial) advisers and any reference to tax advice contained in this document is incidental to the general financial advice it may contain. Super and tax rates and thresholds are valid for 2022-23. You should seek specialist advice from a tax professional to confirm the impact of this advice on your overall tax position. Whilst every care has been taken in the preparation of this information, it may not remain current after the date of publication and AUPFS and its related bodies make no representation as to its accuracy or completeness. Published: June 2023 © Copyright 2023
