There are different options for contributing to superannuation that can provide some significant tax benefits to individuals. Superannuation contributions are taxed at only 15% (or 30% tax if your income is greater than $250,000 per year), which is often less than an individual’s marginal tax rate, when paid from your pre-tax salary. For this reason, superannuation can be an effective tax planning strategy, but does always need to be balanced with an individual’s personal financial goals.
Below is an outline of some effective superannuation strategies.
It is important to note, that this is general advice only and you should seek personal financial advice from your qualified Financial Planner before making any decisions regarding superannuation.
1. Salary Sacrifice Super Contributions
This involves making a request for your employer to pay some of your salary directly into your super fund.
What is the tax benefit?
Ordinarily your salary will be taxed at your individual marginal tax rate, which can be as high as 47% including Medicare Levy for individuals earning over $180,000 per year. Where you salary sacrifice an amount into superannuation, it will only be tax at 15%, saving you the difference between your marginal tax rate.
Please note there is a ‘Concessional Contribution Cap’ that which for the 2022/23 financial year is $27,500, and effectively caps the total amount of super contributions an individual can make in one particular year (note this is an all inclusive cap – salary sacrifice, employer guarantee contributions etc).
2. Personal Super Contributions
You can make a personal superannuation contribution to your super fund account and claim a tax deduction in your personal tax return at the end of financial year.
You may be able to claim a tax deduction for personal super contributions you make up until you turn age 75. If you are over 67 and less than 75 years old you need to meet work test if you wish to claim the Personal superannuation contribution deduction.
What is the tax benefit?
By making a contribution and nominating with your super fund that you wish to claim a tax deduction, this enables you to include a super contribution deduction in your tax return, to reduce your personal taxable income and save you income tax personally.
Your super fund will still withhold the 15% tax on contributions and you are still limited by the ‘Concessional Contribution Cap’.
3. Government Co-contribution
Your personal income level and how much you contribute into super with after-tax money will determine your entitlement to the government co-contribution. The maximum co-contribution amount that can be received is $500 per year that you are eligible.
What is the tax benefit?
There is no direct tax benefit, this is a government cash payment to your super fund account. The amount received does not have any tax paid on it in your super fund, nor do you pay tax on it personally.
4. Spouse Contributions
You may be able to claim a tax offset if you make an eligible contribution to super on behalf of your spouse (married or de facto) who is low income earning or not working.
What is the tax benefit?
You can claim a tax offset up to an amount of $540 per year.
Importantly, before you make any decisions please ensure you obtain the correct advice for your specific situation.
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