Want to help boost your retirement savings while potentially saving on tax? Here are some smart super strategies to consider before the end of the financial year.
1. Add to your super – and claim a tax deduction
If you contribute some of your after-tax income or savings into super, you may be eligible to claim a tax deduction. This means you’ll reduce your taxable income for this financial year – and potentially pay less tax. And at the same time, you’ll be boosting your super balance.
How it works
The contribution is generally taxed at up to 15% in the fund (or up to 30% if you earn $250,000 or more). Depending on your circumstances, this is potentially a lower rate than your marginal tax rate, which could be up to 47% (including the Medicare Levy) – which could save you up to 32%.
Once you’ve made the contribution to your super, you need to send a valid ‘Notice of Intent’ to your super fund, and receive an acknowledgement from them, before you complete your tax return, start a pension, or withdraw or rollover the money.
Keep in mind that personal deductible contributions count towards the concessional contribution cap, which is $25,000 for this 2018/19 financial year (which also includes all employer contributions, including Superannuation Guarantee and salary sacrifice). Penalties may apply if you exceed the cap – so it’s important that you stay within the limits.
2. Get more from your salary or a bonus
If you’re an employee, you may be able to arrange for your employer to direct some of your pre-tax salary or a bonus into your super as a ‘salary sacrifice’ contribution.
Again, you’ll potentially pay less tax on this money than if you received it as take-home pay – generally 15% for those earning under $250,000 pa, compared with up to 47% (including Medicare Levy).
How it works
Ask your employer if they offer salary sacrifice. If they do, it can be a great way to help grow your super tax-effectively. Remember salary sacrifice contributions count towards your concessional contribution cap, along with any superannuation guarantee contributions from your employer and personal deductible contributions.
3. Convert your savings into super savings
Another way to invest more in your super is with some of your after-tax income or savings, by making a personal non-concessional contribution.
Although these contributions don’t reduce your taxable income for the year, you can still benefit from the low tax rate of up to 15% that’s paid in super on investment earnings. This tax rate may be lower than what you’d pay if you held the money in other investments outside super.
How it works
Before you consider this strategy, make sure you’ll stay under the non-concessional contribution (NCC) cap, which in 2018/19 is $100,000 – or up to $300,000 if you meet certain conditions. That’s because after-tax contributions count as non-concessional contributions – and penalties apply if you exceed the cap.
Also, to use this strategy, your total super balance must have been under $1.6 million on 30 June 2018.
Remember, once you’ve put any money into your super fund, you won’t be able to access it until you reach preservation age or meet other ‘conditions of release’. For more information, visit the ATO website at ato.gov.au
Turning 65 during the current financial year (2018/19)?
If you were 64 on 1 July 2018 and have turned or are turning 65 during this financial year, this will be the last chance to trigger the bring-forward NCC cap, provided:
- You have not triggered the bring-forward NCC cap in the past two financial years;
- The work test is satisfied if you have already turned 65 at the time of making the contribution;
- On previous 30 June (i.e. 30 June 2018), your super balance was below $1.4 million to trigger the three-year bring-forward NCC cap, or below $1.5 million to trigger the two-year bring forward NCC cap.
4. Get a super top-up from the Government
If you earn less than $52,697 in the 2018/19 financial year, and at least 10% is from your job or a business, you may want to consider making an after-tax super contribution. If you do, the Government may make a co-contribution of up to $500 into your super account.
How it works
The maximum co-contribution is available if you contribute $1,000 and earn $37,697 pa or less. You may receive a lower amount if you contribute less than $1,000 and/or earn between $37,697 and $52,697 pa.
Be aware that earnings include assessable income, reportable fringe benefits and reportable employer super contributions. Other conditions also apply – speak to us to find out more.
5. Boost your spouse’s super and reduce your tax
If your spouse is not working or earnsa low income, you may want to consider making an after-tax contribution into their super account. This strategy could potentially benefit you both: your spouse’s super account gets a boost, and you may qualify for a tax offset of up to $540.
How it works
You may be able to get the full offset if you contribute $3,000 and your spouse earns $37,000 or less pa (including their assessable income, reportable fringe benefits and reportable employer super contributions).
A lower tax offset may be available if you contribute less than $3,000, or your spouse earns between $37,001 and $39,999 pa.
Recently legislated measures
Keeping insurances cover in inactive super accounts
From 1 July 2019, trustees of MySuper or choice funds are prohibited from providing insurance where a member’s account has been inactive for a continuous period of 16 months or more unless the member has made a valid written election to take out or maintain insurance.
For the purposes of this measure, a member’s account is inactive if the super fund has not received a contribution or rollover in respect of the member. It is important to note that this measure applies to both default insurance and voluntary insurance cover, regardless of the quantum of a member’s super balance.
This measure also applies to existing insurance arrangements that are in place before 1 July 2019.
If the member’s super account has been inactive for 16 months or more prior to 1 July 2019, any insurance cover held within that inactive account will be cancelled on 1 July 2019, unless the member submits a valid written election to their fund to maintain their insurance cover. If you wish to maintain insurance cover in an inactive super account, particularly if are unable to obtain similar cover elsewhere due to age or health reasons, you need to submit a valid election to your super fund before your insurance cover is cancelled.
Recent retirees may make extra super contributions using work test exemption
From 1 July 2019, recent retirees aged 65 to 74 with a super balance below $300,000 at the previous 30 June will be eligible to make voluntary super contributions for an extra financial year, where they have met the work test in the previous financial year. The work test exemption is a once in a lifetime exemption and can only be used in one financial year.
You’ll need to meet certain eligibility conditions before benefitting from any of these strategies. If you’re thinking about investing more in super before 30 June, talk to us. We can help you decide which strategies are appropriate for you.