Our greatest asset is the ability to earn an income, yet so many of us don’t have income protection insurance. And yet, it’s tax deductible.
It’s just one of the many considerations taxpayers need to account for when planning for the End of Financial Year (EOFY), particularly those nearing retirement who need a boost to their super balances.
Strategies to boost super before June 30 include:
- 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. The contribution is generally taxed at up to 15 per cent in the fund (or up to 30 per cent if your income from certain sources is $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 per cent (including the Medicare Levy) – which could save you up to 32 per cent. 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 your concessional contribution cap, which is $27,500 for the 2022/23 financial year. However, you may be able to contribute more than that without penalty if you didn’t use the entire concessional cap in financial years since 1 July 2018 and are eligible to make ‘catch-up’ contributions.
- If your spouse is not working or earns a 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 account gets a boost and you may qualify for a tax offset of up to $540. You may be able to get the full offset if you contribute $3,000 and your spouse earns $37,000 or less p.a. A lower tax offset may be available if you contribute less than $3,000, or your spouse earns between $37,000 and $40,000 p.a.
- If you earn less than $57,016 in the 2022/23 financial year, and at least ten per cent 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.
The maximum is available if you contribute $1,000 and earn $42,016 p.a or less. You may receive a lower amount if you contribute less than $1,000 and/ or earn between $42,016 and $57,016 p.a. - Lastly, another way to invest more into your super is with some of your after-tax income or savings, via 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 per cent that is 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. Before you consider this strategy however, make sure you stay under your non-concessional contribution cap, which in currently $110,000 or up to $330,000 if you meet certain conditions. Also, to use this strategy in 2022/23, your total super balance must have been under $1.7 million on 30 June 2021.
There are many strategies worthy of consideration in maximising your superannuation but it’s important to remember that once you’ve put any money into your super fund, you won’t be able to access it until you reach your preservation age.
This article was first published in the Winter 2023 issue of Financial Times.