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Tax Deductions for Topping Up Super
One of the most effective ways to boost your super savings while reducing your tax bill is by making concessional contributions. The concessional contributions cap is set at $27,500 per year, assuming your super balance hasn’t reached the cap limit. If your employer contributions or salary sacrifice haven’t reached this threshold, you can make personal contributions and claim a tax deduction, effectively boosting your super and lowering your taxable income.
For individuals aged between 67 and 74, however, there’s a “work test” in place. To make personal concessional contributions, you must work at least 40 hours over 30 consecutive days in a financial year before your super fund can accept voluntary contributions.
Keep in mind that to claim the tax deduction for these contributions, they must be submitted to your super fund by June 30 (ensure you factor in processing times). Additionally, before lodging your tax return, you must submit a Notice of Intent to Claim or Vary a Deduction for Personal Super Contributions with your super fund.
Bringing Forward Unused Contribution Caps
If your total super balance is less than $500,000 and you haven’t used your full concessional contribution cap in the past four years, you could take advantage of the “carry forward” provision. This allows you to roll over unused concessional contributions into the current financial year, enabling you to make a larger tax-deductible contribution.
For example, if your contributions in the 2021-2022 financial year were $10,000, you can carry forward the unused $17,500 and contribute that extra amount this year, thus reducing your taxable income. This strategy is particularly valuable for those who experience a capital gain or a high income in a given year.
If you’ve never used your contribution cap—perhaps due to returning to Australia from overseas or recently becoming a resident—you could contribute up to five years’ worth of concessional contributions in a single year, provided you haven’t exceeded the contribution cap.
Doubling the Benefit for SMSFs
Self-managed superannuation funds (SMSFs) offer an interesting opportunity to double your concessional contributions. Due to the way contributions are reported for SMSFs, you can make a contribution in June, but it may not be allocated to the member until 28 days later in July. The result is that an SMSF member could potentially contribute up to $55,000 in a financial year (double the usual $27,500 cap) and still claim the full tax deduction for the contributions.
This is particularly advantageous for self-employed individuals who want to significantly boost their super savings and reduce their tax liability for the financial year. The ability to split contributions between June and July helps them take full advantage of the concessional contributions cap.
Top Up Your Partner’s Super
As a couple, one way to optimize your super savings is by topping up your partner’s super account. If your spouse’s assessable income is below $37,000, contributing $3,000 or more to their super could yield a tax offset of up to $540. This strategy allows you to balance out your super contributions, ensuring both partners have a similar super balance, which maximizes tax and super savings, especially when preparing for retirement.
Another option is super splitting. If your spouse hasn’t yet reached their preservation age and is still working, you can split up to 85% of a financial year’s taxable contributions into their super account. This can help level the playing field and benefit both individuals come retirement.
Thinking of Retiring? Wait Until 1 July
If you’re nearing retirement, consider waiting until 1 July 2023 to start your retirement income stream. From that date, the general transfer balance cap, which determines the amount you can transfer into a tax-free retirement account, will increase by $200,000, raising the cap to $1.9 million.
For those approaching retirement, waiting until after 1 July could allow you to access this additional $200,000 in tax-free super savings. This extra allowance can significantly boost your retirement super savings, providing more flexibility and financial security in your golden years.
Consult with a Financial Planner about your super savings
Before implementing any of these strategies, it’s crucial to consult with a financial planner. They can help you navigate the rules, ensure you’re maximizing your super savings, and tailor strategies that fit your specific retirement goals. With the right advice and planning, you can build a more secure and comfortable future for yourself and your loved ones.
Notice of intent to claim or vary a deduction for personal super contributions
