The end of the financial year can offer opportunities to grow your superannuation and get started with saving for retirement. As annual limits apply to the amount you can add to your superannuation each year, it is important to consider how much you have already added to your account (or accounts) during the financial year to know which strategies can work for you.
Here are some options to consider.
Salary sacrifice is an arrangement where part of your pre-tax wage or salary is paid into your superannuation account instead of being received as cash in hand. It could be an effective way to boost your superannuation and help you with saving for retirement.
Keep in mind that salary sacrifice contributions count towards your annual concessional contributions cap, as do any super contributions made for you by your employer. For the 2015/16 financial year the concessional contributions cap is $35,000 if you are aged 50 or over, otherwise a limit of $30,000 applies. Any contributions made above these limits will attract additional tax.
Do a budget to work out how much you can afford to invest from each pay packet. Talk to your employer to set up salary sacrifice arrangements and be mindful of the concessional contributions cap.
Do note, the Federal government has proposed that the concessional (before-tax) contributions limit be reduced to $25,000 annually for all workers, irrespective of age, commencing 1 July 2017. In addition the 2016/17 Federal budget has proposed that from 1 July 2017 workers with less than $500,000 in super will be allowed to make additional before-tax contributions if they have not used their full concessional (before tax) contribution limits in previous years, although this will only apply to unused caps from the 2017/18 and later financial years.1
'After-tax', or non-concessional super contributions are made from money you have already paid income tax on. For example if you work for an employer, making a contribution to super directly from your bank account may be classed as a non-concessional contribution.
It could be advantageous to invest in your superannuation using after-tax contributions rather than investing in assets held outside super. This is because money you invest in your super from your after-tax income isn’t subject to contributions tax (15%). In addition, any investment earnings within your super are taxed at a maximum of 15%, which may be well below your personal tax rate.
In the 2016/17 financial year, if you are a middle to low income earner, adding to your superannuation from after-tax money could see you entitled to a government co-contribution worth up to $500.
To be eligible you need to earn less than $51,021`in the financial year and be aged below 71 years at the end of the financial year.
The maximum co-contribution of $500 is available if you earn less than $36,021 You’ll need to make a contribution yourself of at least $1,000 to receive the maximum co-contribution. The co-contribution steadily reduces as income rises and cuts out altogether at annual income of $51,021.2
If your spouse or partner’s assessable income is less than $13,800 in a financial year, you can potentially make super contributions on behalf of your spouse and claim a tax offset.
The maximum tax offset available is $540 if your spouse receives $10,800 or less in income and provided you make an after-tax (non-concessional) contribution of at least $3,000. The tax offset is progressively reduced until it reaches zero for spouses who earn $13,800 or more in assessable income in a year.
The Federal government is proposing to make the spouse super tax offset more accessible by raising the lower income threshold for the receiving spouse from $10,800 to $37,000 from 1 July 2017.3
1 ATO website – Your age and super contribution caps - https://www.ato.gov.au/individuals/super/in-detail/withdrawing-and-paying-tax/super-contributions---too-much-super-can-mean-extra-tax/?page=6#Your_age_and_super_contributions_caps
2 ATO website – Government super contributions - https://www.ato.gov.au/individuals/super/growing-your-super/adding-to-my-super/government-super-contributions/
3 ATO website – Super related tax offsets - https://www.ato.gov.au/individuals/income-and-deductions/offsets-and-rebates/super-related-tax-offsets/
This information is current as at 15/08/2015.
This information has been prepared without taking account of your personal objectives, financial situation or needs. Because of this you should, before acting on this information, consider its appropriateness, having regard to your objectives, financial situation and needs.
This information provides an overview or summary only and it should not be considered a comprehensive statement on any matter or relied upon as such.
Superannuation is a long-term investment. Generally, contributions to a superannuation fund are preserved. The government has placed restrictions on when you can access your preserved benefits. In general, benefits will not be able to be paid until a member is age 65, or has permanently retired and is above his/ her preservation age (i.e. 55 years up to 60 years depending on when the member was born).
The Government has set caps on the amount of money you can add to superannuation each year on a concessionally taxed basis. Currently the cap is $30,000 per person pa for the 2016/17 financial year. If you are aged 49 or over on 30 June 2016, the annual cap is $35,000.
In addition, the government has set a non-concessional contributions cap. The cap is $180,000 per person pa. Those under age 65 can ‘bring forward’ two years’ worth of personal contributions, allowing them to contribute up to $540,000 per person over a three year period. However, in the Federal Budget announced on 3 May 2016, the government proposed to introduce a lifetime cap of $500,000 on non-concessional contributions, which would include non-concessional made since 1 July 2007. For more detail, speak with a financial adviser or visit the ATO website.
The tax position described is a general statement and is for guidance only. It has not been prepared by a registered tax agent. It does not constitute tax advice and is based on current tax laws and our interpretation. Your individual situation may differ and you should seek independent professional tax advice.