Superannuation is a very topical conversation at the moment. With people living longer, many of us want to know how to best use our super to ensure we can enjoy the lifestyle we want in retirement. There are many ways to maximise your superannuation contributions and have it working as hard as you. Taking control of your future and choosing to invest in your super has never been more important. Ensuring that your super fund is set up correctly, monitored and performing at its best will be essential to your retirement health. This article will cover the three main ways to maximise your super:
1. Employer Superannuation contributions
The super guarantee charge (SGC) is a compulsory superannuation payment that your employer has to make for just about all employees. Under the SGC, employers have to pay superannuation contributions of 10% of an employee’s ordinary time earrings when they are paid $450 or more before tax a month and are over 18 (If they are under 18 they have to work over 30 hours a week to be eligible). There is no age limit to when you stop receiving your SGC anymore, so if you’re inclined to keep working, you will still get your SGC payments for your wages.
When this money goes into your Superfund, it gets taxed at 15%. Higher wage earners who have a total adjusted income of over $250,000 will have to pay an extra 15% on top of that. Either way, if it’s 15% or 30%, it is generally still less than the average tax rate of 47% or even 34.5%.
Salary sacrificing is another way you can use your employer contributions to maximise your super. Salary sacrifice is an arrangement with your employer whereby you forgo part of your salary or wage to have it paid into your superannuation fund. Again this may be beneficial as you are only paying tax at a rate of 15% rather than your normal tax rate rather which would be much higher.
2. Personal Superannuation Contributions
Personal contributions are the ones you can voluntarily make and claim a tax deduction for in doing so. Same as the employer contributions, these are also taxed at 15% as the money goes into the super fund. If you are a high-income earner (over $250,000), at the EOFY when you lodge your tax return, the ATO will send you a bill for the extra 15% which you can pay personally or get deducted from your superfund.
Please note that the maximum concessional contribution cap is now $27,500 per person. This is inclusive of all the SGC and any other personal concessional contributions that an employee might like to make. They do, however, allow you to carry forward the unused amounts for five years on a rolling basis if your total super balance is less than $500K on 30 June the year before. This is a great tool if you are wanting to offset capital gains or have had a really good year. It allows you to put a little bit into your super and reduce your tax bills.
Personal non-concessional contributions are the ones you pay voluntarily out of your after-tax dollars. The advantage of these contributions is that when they go into your superfund, they don’t get taxed at all. To be eligible to make these payments, your super balance must be less than $1.7 million on June 30 the year before. There is a limit to the amount you can pay in non-concessional payments and it is $110,000 per year. Your cap may be higher if you are eligible for the Bring Forward arrangement. The below table outlines how the Bring Forward arrangement works. Please note, you must be under 67 years of age to be eligible.
If your partner is a low-income earner, working part-time, or currently unemployed, adding to their super could benefit you both financially. If your spouse is younger than 75 and makes less than between $37-$40k a year, you may be eligible to make a contribution to their super fund and claim an 18% tax offset up to $540 (on the first $3,000 contribution) through your tax return.
3. Other superannuation contributions
If you are a low-income earner and make personal, non-concessional super contributions, you may be eligible for government super co-contributions. This is basically just a government initiative to help low-income earners save for their retirement whereby the government contributes up to $500 into your super fund. To be eligible you must also have met the quasi employment test, meaning at least 10% of your income must be coming from employment or business sources, you are under 71 years of age, and have less than $1.7 million in your super fund on the last day of the financial year. As it is a low-income strategy, it does phase out once your income is between $54,000 and $56,000.
Low-Income Tax Offset
The Low-Income Tax Offset scheme was introduced to encourage people to save for their retirement and helps to prevent low-income earners from paying more tax on their super contributions than they would have if they had earned the salary and made an after tax contribution instead. A few years ago the ATO acknowledged that this wasn’t fair, so now, in addition to the Government Co-Contribution opportunity, they will actually reimburse your 15%.
If you’re aged 65 years or older, you may be eligible to make a downsizer contribution of up to $300,000 to a complying super fund from the proceeds of the sale of your primary residence, if it was owned for 10 years or more. A downsizer contribution doesn’t count towards any of the contribution caps – and can still be made even if a person has total super savings greater than $1.7 million, or if they do not meet the work test requirements. It is a once-off option and doesn’t apply to the sale of any residences in the future. You must complete the Downsizer Contribution Form and make the contribution within 90 days of settlement.
Small Business CGT Concessions
The small business capital gains tax (CGT) concessions allow you to reduce, disregard or defer some or all of a capital gain from an active asset used in a small business. Rather than saving for retirement during their working lives, many small business owners instead use surplus funds to grow their business. The CGT cap exists to allow small business owners to make large contributions into superannuation once business assets have been sold. They are, however, very complicated and have a strict eligibility criteria. The definition of a small business in this sense means turnover of less than $2 million or net assets of less than $6 million. There are two parts that make up the concessions – the 15-year asset exemption and the small business retirement exemption. As the CGT concessions are complex, make sure you get the greatest benefit from them and seek professional advice from a qualified professional, such as your accountant or financial advisor.
As you can see, there are many ways to get money into your superannuation without breaching any contribution caps. People tend to forget about it until it’s too late. Don’t be those people, Retire in style.
Make the choice to take control of your life after work and start maximising your super super today. If you are interested, you can watch our recent boardroom briefing presentation on this very topic here.
If you would like to discuss how you can maximise your super in person, contact us today and let our qualified accountants & financial planners find the best option for you.
The information in this article is general information only and is not intended to be a recommendation. It is current only at the time of writing and the rules change frequently. We strongly recommend you seek advice from your financial adviser as to whether this information is current and appropriate to your needs, financial situation and investment objectives before making any decisions.
Whilst every care has been taken in the preparation of this article, the Everalls Group, its directors, authors, consultants, editors and any persons involved in preparation of this article, expressly disclaim all and any form of liability to any person in respect of this article and any consequences arising from its use by any person in reliance upon the whole or any part.