The end of the financial year is rapidly approaching and, along with it, the opportunity to claim a tax deduction on additional superannuation contributions.
Why contribute more to super?
Superannuation does impose restrictions on access to your money. It is, after all, intended to provide for your retirement. So why would you lock up more of your money? Because superannuation remains one of the most tax-favoured environments within which to build wealth. That can make it an ideal place to invest your long-term savings.
What are concessional contributions?
Concessional contributions are super contributions that have been claimed as a tax deduction by someone. They include employer contributions – both super guarantee and salary sacrifice – as well as personal contributions on which you may be eligible to claim a tax deduction.
How much can I contribute?
For the 2017/18 financial year the limit on concessional contributions from all sources is $25,000.
For example, if your annual salary is $150,000 and you only receive super guarantee contributions, your employer will contribute $14,250 (9.5% of your salary) to your fund. That means you can make personal contributions of up to $10,750, and if you meet the eligibility terms, claim a tax deduction.
Entering into a salary sacrifice arrangement with your employer would achieve the same result.
Based on the above salary, the maximum amount you could salary sacrifice is also $10,750, but you may not have enough time to do that this financial year.
The below table shows the potential impact on your superannuation balance and income tax as a result of this strategy:
| DO NOTHING | CONTRIBUTE TO SUPER | |
| Income | $150,000 | $150,000 |
| Less Salary Sacrifice | $0 | $10,750 |
| Taxable Income | $150,000 | $139,250 |
| Tax payable (including Medicare levy) | $46,132 | $41,940 |
| Net Income | $103,868 | $97,310 |
| Superannuation Contributions Tax | $0 | $1,613 |
| Summary of Benefits | ||
| Increase in Superannuation (less tax) | $0 | $9,138 |
| Overall Tax Savings | $0 | $2,580 |
| Reduction in net take home pay | $0 | $6,558 |
| OVERALL NET BENEFIT | $0 | $5,159 |
When is the deadline and what paperwork is required?
Your contributions must be received and credited by your super fund by 30 June. To play it safe make your personal contribution at least two weeks before the end of financial year.
You must also notify your superannuation fund that you intend to claim a tax deduction for a personal contribution. Your fund may send you the appropriate form to complete or you can use form NAT 71121 available from www.ato.gov.au (link below) to provide written notification to your fund. Your super fund must acknowledge receipt of this notice to make it a valid claim.
What if I’m approaching the cap?
If you’ve maxed out your cap for this year and your spouse’s income is under $40,000, you may pick up a tax offset of up to $540 by making a spouse contribution to their fund.
Need help?
Your Think Big Financial Group financial advisor can help you work out how to make the most of your concessional contribution cap and explain the finer details. And if you miss this year’s deadline, talk to your advisor about putting in place a plan to ensure you take advantage of next year’s concessional contribution opportunity.
GENERAL ADVICE WARNING: All strategies and information provided on this website are general advice only which does not take into consideration any of your personal circumstances. Please arrange an appointment to seek personal financial and taxation advice prior to acting on this information.
Sources:
How to make a claim: https://www.ato.gov.au/Individuals/Super/In-detail/Growing/Claiming-deductions-for-personal-super-contributions/
Change to tax offset for spouse contributions: https://www.ato.gov.au/Individuals/Super/Super-changes/Change-to-tax-offset-for-spouse-contributions/
