Relying on your employer’s 10% (2021/22) 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.
If you provide your super fund with a ‘Notice of intent to claim or vary a deduction for personal contributions’ or equivalent form for these personal contributions, 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 may be 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 contributions from your salary or non-super 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 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. It may be worth looking at ways to grow their super and by making a contribution yourself to your partner’s super account, you may benefit from a tax offset.
Another way to help boost your partner’s super balance is through transferring up to 85% of your own concessional – or before-tax – super contributions you’ve made to your fund, to your partner’s super account – a strategy known as contribution splitting.
Unlike spouse contributions which involve the payment of your own funds directly to your spouse’s super account, contribution splitting involves the transfer of a portion of the contributions made to your super account to your spouse’s super account.
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.
Things you should know
This information is current as at 1 July 2021.
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.
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.
Superannuation is a means of saving for retirement, which is, in part, compulsory. The government has placed restrictions on when you can access your investments held in superannuation. The Government has set caps on the amount of money that you can add to your superannuation each year and over your lifetime on both a concessional and non-concessional tax basis.
The Government has set caps on the amount of money you can add to superannuation each year on a concessionally taxed basis. Currently the general concessional cap is $27,500 for the 2021/22 financial year. If you have a total super balance of less than $500,000 at the end of the previous financial year, you may be able to contribute more than the general concessional cap amounts (accrued from 1 July 2018) for up to 5 financial years.
The non-concessional cap is $110,000 for the 2021/22 financial year. Eligible individuals can ‘bring forward’ two years’ worth of personal contributions, allowing them to contribute up to $330,000 per person over a three year period. Your total super balance as at 30 June of the previous financial year may impact the amount you are eligible to ‘bring forward’. For example, if your total super balance is $1.7 million or more on 30 June of the previous financial year, your non-concessional contributions cap will be nil. There may be tax consequences if you breach the contributions caps. For more detail, speak with a financial adviser or registered tax agent or visit the ATO website.
It is your responsibility to monitor your caps to avoid any additional tax that may apply if you exceed the caps.
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.