At ASAP Solutions, we’re consistently seeking out legitimate methods to assist our clients in reducing their tax liabilities. One effective technique is making extra contributions to superannuation funds. This strategy not only boosts retirement savings but can also offer significant tax benefits.
Understanding Concessional Contributions
Concessional contributions are pre-tax superannuation payments. These include:
- Employer contributions (including super guarantee)
- Salary sacrifice arrangements
- Personal contributions claimed as a tax deduction
The Tax Advantage
Concessional contributions are taxed at 15% within the super fund, which is often lower than an individual’s marginal tax rate. This differential creates a potential tax saving opportunity.
Making Personal Contributions
You can make personal contributions to your super fund and claim a tax deduction. The process is as follows:
- Contribute: Put forth a contribution to a complying super fund.
- Notify: Send a “Notice of intent to claim” form to the super fund.
- Receive Acknowledgement: Secure written acknowledgement from the fund.
- Claim: Include the deduction in the tax return.
Contribution Caps
There is a concessional contributions cap to bear in mind:
- $27,500 per financial year (effective from 2023-24)
- This cap includes all types of concessional contributions (employer, salary sacrifice, personal)
Carry-Forward Rule
If your total super balance is less than $500,000, they may have the option to “carry forward” unused concessional cap amounts from previous years (up to five years).
Key Considerations
- Age Limits: Personal contributions can be made by people under 75. Those aged 67-74 must meet the work test or fulfil the work test exemption.
- Timing: Contributions must be received by the fund prior to 30 June to be deducted in that financial year.
- High-income earners: Those with a salary over $250,000 might be subjected to an additional 15% tax on concessional contributions.
Benefits for You
- Reduced Taxable Income: Personal contributions can decrease your assessable income.
- Boost Retirement Savings: Additional contributions increase in a concessionally taxed environment.
- Flexibility: You can decide how much to contribute, based on your financial situation.
Making extra super contributions can be a win-win strategy, increasing your retirement savings whilst providing immediate tax benefits. But you should always seek advice before making these financial decisions. As your accountant, we can help you navigate contribution rules and caps, to optimise these benefits. Remember, individual circumstances differ and we recommend chatting with a professional to make a strategic decision that suits you.
If you would like to discuss how making additional contributions will impact your tax, please reach out to Amanda for a chat.