Relying on your employer’s 9.5% Superannuation Guarantee (SG) contributions alone may not provide sufficient funds for you to achieve your retirement goals. Taking active steps to boost your super today through extra super contributions could mean enjoying a better quality lifestyle in retirement and there may be tax benefits you can take advantage of.
Let’s look at the key options available.
You can also read our guide to contributions here.
Adding to your super with before-tax money could be a tax-friendly way to boost your superannuation. They are known as ‘concessional contributions’. Annual limits apply to concessional contributions – something to bear in mind when adding to your super.
A tax-effective way of making additional before-tax contributions to your superannuation is through salary sacrificing. Contributions can be made from your pre-tax salary – rather than receiving the money as cash in hand. These are known as ‘concessional contributions’. As these super contributions are taxed at a low rate in most cases, this strategy could help to boost your retirement savings and it could also be a useful tax-effective investment strategy.
You should consider your concessional contributions cap when considering a salary sacrifice strategy to super.
You can make personal contributions using after-tax dollars (such as funds you transfer from your bank account into your super) and then claim them as a tax deduction when doing your tax return.
Your super fund will treat them as before-tax (concessional) contributions and they will be subject to 15% contributions tax, similar to salary sacrifice contributions. This tax-effective investment strategy is of benefit if you are self-employed or your employer doesn’t offer you the option to salary sacrifice, or if you have cash to spare.
You should consider your concessional contributions cap when considering a tax deductible contribution strategy to super.
Limits apply to superannuation contributions made from after-tax money (which you don't claim a tax deduction on), which could include your salary or investment proceeds. These are known as ‘non-concessional contributions’. With the Government's super co-contribution scheme, by making a non-concessional contribution into your super, you may receive a benefit from the Government based on any after-tax contributions you make to your superannuation fund, if you meet the eligibility criteria.
If you are aged 65 or over, you may be eligible to contribute up to $300,000 ($600,000 combined for a couple) from the proceeds of the sale of your principal residence to your superannuation as a downsizer contribution.
Downsizer contributions are not tax deductible, and are not counted towards your contribution caps.
If your spouse or partner is a low income earner, a stay at home parent, or not working at present, he or she may not be receiving superannuation contributions from an employer. This makes it worth looking at ways to grow their super and by making a contribution yourself to your partner’s super account, you could benefit from a tax rebate.
With a variety of ways to grow your superannuation it’s worth exploring the different options available to see which best suit your budget today – to help you achieve your goals for tomorrow.
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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.