Tax on superannuation – part two: end of financial year contributions

The end of the financial year is the ideal time to think about how to get your super working harder, and take advantage of the available tax concessions on super contributions.

Many people refer to super as something they’ll think about when they get close to retirement. But by then it’s too late.

When you understand the ins and outs of the tax concessions available to you with super (see 'Tax on superannuation – part one'), it makes sense to consider maximising them. And there’s no time like the end of the financial year to get started.

Here are seven superannuation strategies you could consider.

Superannuation strategy 1: Use salary sacrifice to top up your super

Salary sacrifice is an arrangement you make with your employer to effectively ‘give up’ part of your before-tax salary and have it paid into your super account instead. 

Not only is this an effective way to boost your super and help you save for retirement but there may also be additional tax advantages for you, depending on how much you earn.

To see if it’s right for you, create a budget to work out how much you can afford to contribute to your super from each pay packet and speak to your employer about helping you set this up.

As with all contributions into super, there’s a limit on how much you can pay into your super and still receive favourable tax treatment. Salary sacrifice contributions count towards your concessional contributions cap each financial year so be careful not to exceed the overall limit.

Also be aware that if your combined income and concessional contributions are greater than $250,000, you may be charged a “Division 293 tax”, which is an additional 15% tax on some or all of your super contributions.

Read more about Division 293 at the ATO website.

Superannuation strategy 2: Consider making a one-off contribution

After-tax, or non-concessional, super contributions are those you make from money you’ve already paid income tax on and therefore won't be claiming a tax deduction for. 

The advantage of this strategy is in the way your investment earnings are taxed. Within super, you’ll pay up to 15% tax on any investment growth rather than your marginal tax rate, which applies to any investments you hold outside of super. You should be aware, depending on your income level, your marginal tax rate may be less than 15%.

The annual limit for after-tax contributions is currently $110,000 (2021/22), provided your total superannuation balance is below $1.7 million at 30 June 2021.

In certain circumstances, you may be able to bring forward three years of after-tax contributions into one year. This would allow you to contribute up to $330,000 if you haven't triggered the rule in the previous two years and your total superannuation balance is below $1.48 million on 30 June 2021. 

There are restrictions on the maximum amount you can contribute if your total superannuation balance is between $1.48 and $1.7 million on 30 June 2021.

Superannuation strategy 3: Check your eligibility for a Government co-contribution

Investing in super isn’t just a strategy for the wealthy to enjoy tax benefits. The Government is keen to ensure middle to low-income earners also benefit. 

If you make after-tax personal contributions into your super, you may be eligible for a top-up from the Government called a Government Co-contribution.

With the Government's super co-contribution scheme, if you are eligible and your total income* is $56,112 or less (2021/22), then you will receive 50 cents from the Government for every after-tax dollar you contribute to super up to a maximum of $500.

The co-contribution amount decreases by 3.333 cents for every dollar earned over $41,112, until it reaches zero at $56,112 (2021/22). The maximum co-contribution is $500.

Read more about super contributions: Government co-contributions scheme.

Superannuation strategy 4: Maximise your tax-deductible super contributions

In addition to the Superannuation Guarantee contributions your employer makes into your super, you can also make personal super contributions. You might even be able to claim a tax deduction for them too. 

To claim a deduction, you must give a notice to the Trustee of your super fund and have it acknowledged by them. Your age, assessable income and other pre-tax contributions you’ve made can all affect whether this strategy is appropriate for you, so it’s worth having all this information to hand at tax time. 

It may be a great way to pay less tax while saving more for your future. 

Keep in mind that personal deductible super contributions count towards your annual before-tax (or concessional) contributions cap. 

Also be aware that if your combined income and concessional contributions are greater than $250,000, you may be charged a “Division 293 tax”, which is an additional 15% tax on some or all of your super contributions.

Read more about Division 293 at the ATO website.

Superannuation strategy 5: Investigate the spouse super contribution tax offset 

If your spouse is earning a low income, or has taken time off work, by making an after-tax contribution to their super account you can help them boost their retirement savings, and potentially claim a tax offset for yourself.

If you contribute to your spouse’s super – and they earn less than $37,000 – then you can potentially claim an 18% tax offset on a contribution of up to $3,000. This makes the maximum tax offset $540. While you can contribute more than this, there is no offset on any amounts above $3,000. To receive the offset you need to make the contribution using after-tax dollars where you haven’t claimed a tax deduction.

The tax offset progressively reduces if your spouse’s income is above $37,000 and is completely phased out when their income reaches $40,000. 

Read more about spouse contributions and contributions splitting.

Superannuation strategy 6: Capitalise on tax efficiencies to save for your first home

Younger generations have the potential to benefit from super before they reach retirement age. 

If you’re saving for your first home, the First Home Super Saver Scheme (FHSSS) enables you to make voluntary superannuation contributions to help save for a deposit on your first home. These contributions, and any associated investment growth, can be accessed subject to eligibility criteria. The total you can contribute and save towards the FHSSS is capped at $15,000 a year, and the maximum you can access is capped at $30,000.

Voluntary contributions eligible for release include salary sacrifice contributions and personal contributions. Superannuation Guarantee contributions and those over the contribution caps can’t be accessed under the FHSSS. 

Read more about the First Home Super Saver Scheme (FHSS).

Superannuation strategy 7: Take advantage of the downsizing opportunity

If you’re aged 65+, you could add up to $300,000 (or $600,000 for a couple) tax-free from the sale of your principal residence to your super. 

Read more about the Downsizer contribution.

Don’t get caught out

While these strategies can be an effective way to grow your super, always remember the Government imposes strict annual limits on the amount you can contribute to your super each year. 

So, before you make any additional contributions, make sure you know much you’ve already added to your super account(s) during the financial year. And don’t forget, any additional contributions must be in your account before 30 June or they’ll be counted against the next financial year’s annual limits.

Read more about Understanding contributions.

Next: Top up my super

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* Total income is defined as:

  • assessable income, plus
  • reportable fringe benefits, plus
  • reportable employer super contributions (RESC)**
  • less allowable business deductions. (Deductible contributions to super and work-related employee deductions are not allowable business deductions and cannot reduce 'total income'.)

**RESC are generally salary sacrifice contributions to super or amounts that you could have chosen to receive as salary or wages. RESC does not include employer superannuation guarantee contributions.

This article was prepared by BT Funds Management Limited ABN 63 002 916 458 (BTFM) and is current as at 1 July 2021. BTFM is the trustee of the following products:

(a) BT Super for Life, BT Super for Life Westpac Group Plan and BT Super part of the superannuation fund Retirement Wrap ABN 39 827 542 991; and
(b) Asgard Employee Super Account part of the superannuation fund, the Asgard Independence Plan Division Two ABN 90 194 410 365.

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 document 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 means of saving for retirement, which is, in part, compulsory. The government has placed restrictions on when you can access your investment held in superannuation. The Government has set caps on the amount of money that you can add to superannuation each year on both a concessional and non-concessional tax basis.  There will be tax consequences if you breach these caps.  For more detail, speak with a financial adviser or visit the ATO website.  BT cannot give tax advice. Any tax considerations outlined in this article are general statements, based on an interpretation of the current tax law, and do not constitute tax advice. The tax implications of superannuation can impact individual situations differently and you should seek specific tax advice from a registered tax agent or registered tax (financial) adviser.

Read the Product Disclosure Statement (PDS) to see if these products are right for you by visiting bt.com.au or asgard.com.au. Past performance is not a reliable indication of future performance. All examples are illustrative only. Your portfolio value and performance will depend on the investment options you have selected and the time over which they are invested. 

BTFM is a member of the Westpac Banking Corporation ABN 33 007 457 141 AFSL and Australian Credit Licence 233714 (Westpac) group of companies. An investment in these products is not an investment in, deposit with or any other liability of Westpac, any division of Westpac or any other company in the Westpac Group. Westpac and its related entities do not stand behind or otherwise guarantee the capital value or investment performance of the products or any related assets of the products.