How are you maximising your super? Most Australians dream of a comfortable retirement free of financial worry, and while from July 1st 2021, 10% of your income is paid into your super by your employer, in most cases this is not enough to fund the retirement we all dream of. So, you may ask how can I set up my super to be retirement ready?
Below we explain a few ways in which you can maximise your super.
Considerations when maximising your super
But before we get into those details please note that the information below presents only the “tax facts” on super contributions. Ie what you “can” do but not necessarily what you “should” do based on your personal circumstances. Superannuation is a great way to save up for your retirement and can be more tax effective than say, investing in your own name.
However, here are a few important factors about superannuation savings you must remember before you decide to make any additional super contributions:
- It is a long-term investment for your retirement – the money is “locked up” until you meet a “condition of release” eg age 65 or retirement after preservation age. This means that if you are going to need the money sooner (eg for house renovations, debt reduction, kids’ education etc) then you need to talk to a Licenced Financial Planner (eg Everalls Wealth Management) to work out what the best strategy and level of contributions are best for you vs alternatives.
- The maximum amounts of super contributions get indexed from time to time and the contributions eligibility rules can change from year to year eg as per Federal Budget updates so it is important to be very careful and check with your accountant and/or financial planner BEFORE you make any contributions to ensure you have met the current eligibility criteria to avoid Excess Contribution penalties.
- Excess or ineligible super contributions will be subject to extra tax, penalties, and interest.
- Make sure you understand who will be your super beneficiaries (if something happens to you).
- Make sure you have a solid investment strategy for your superannuation money that is reviewed regularly to ensure it keeps working for you as hard as you did to earn the money in the first place!
10 ways to boost your super
1. Employer contribution
Employers must pay at least 9.5 % (10% effective 1st July 2021) of your ‘ordinary time earnings’ (OTE) into your super account. This is known as the Superannuation Guarantee (SG). It is important to note that ‘ordinary time earnings’ (OTE) does not include payments for overtime and parental leave.
To learn more about what payments super is applied to visit our page on ‘Is there super on that?‘
2. Salary sacrifice
This is when you voluntarily elect to have a portion of your before-tax income paid into your super fund by your employer (in addition to what your employer pays for you under the Superannuation Guarantee rules). These contributions are also taxed by your superfund at 15% but that is less than most of the marginal tax rates meaning it is more tax effective to invest via super than in your own name (if you don’t mind your money being locked up inside the super system).
3. Personal Deductible Contributions
Individuals can make further voluntary super payments which can be claimed as an income tax deduction in their personal tax return IF work test and age limits are met AND their total concessional contributions are below the max (see below).
4. Catch up Contributions
If you have Total Super Balance (TSB) of less than $500,000, unused amounts of your concessional contributions cap can be rolled over to future years. However, the unused amount is only available for a maximum of five years, after which they expire.
You can utilise the catch up contributions by making additional salary sacrifice contributions or by making a personal deductible contribution. For a detailed insight into catch-up contributions and to confirm your eligibility and amount please call our team on 02 6232 4588.
Restrictions to Concessional Contributions
There is a “concessional contributions cap” limiting the total combined amount of Employer SGC Super, Salary Sacrifice and Personal Deductible Contributions to $25,000 per person per year. (Increasing to $27,500pa from 1st July 2021). If your total Concessional Contributions exceed the cap you will find yourself paying Excess Contributions Tax.
There are no other eligibility criteria for Employer SGC payments, but eligibility to make Salary Sacrifice and Personal Deductible contributions are also subject to:
- an age limit of 75 (contribution must be received within 28 days of a member reaching age 75); and
- a work test for people aged over 67 at the time of the contribution (unless they are eligible for the work test exemption).
Please note that the Super Fund is required to deduct 15% tax from any concessional contributions received. High income earners also need to note that their concessional contributions will be subject to an additional 15% “Div 293 Superannuation Surcharge Tax” if their gross income exceeds $250,000pa.
5. Personal non-concessional contributions
You may wish to make extra voluntary contributions to your super from your “after tax” money. These are known as non-concessional contributions because you have already paid tax on the money when you earned it. Therefore, it goes into the super fund tax-free. However, there are multiple limits and eligibility critieria to met:
- The maximum age limit for NCC contributions 75 (contribution must be received within 28 days of a member reaching age 75);
- Over 67’s must satisfy a work test (or be exempt from the work test);
- There is a limit to how much you can contribute known as the ‘non-concessional contributions cap.’ For the income year 2020-21 this cap is $100,000 but is increasing to $110,000 per year from 1 July 2021.
- People under the age of 65* at any point during the financial year, may be able to make contributions of up to three times the annual non-concessional contributions cap in a year ie $300,000 max. This is known as the ‘bring-forward’ option. For example you can pay $250,000 in one year and then you’ll only be able to put $50,000 in over the following two years (making $300K over the three years). *Please note that this age limit is pending increase to 67 and the May 2021 Federal Budget announced a proposal to increase this age limit to 75 effective from 1 July 2022.
- If you have a total balance of $1,400,000 as of 30th June 2020, you will also be subject to a reduced after-tax contribution limit; a shorter ‘bring forward’ period; and you cannot make any after-tax contributions if your total exceeds $1,600,000 (increasing to $1,700,000 from 1 July 2021).
6. Spouse Contributions
There may be several reasons why your partner’s super falls behind, they may have lost their job or left work to study or raise children. Whatever it may be, you can make a spouse contribution to their super account. In this scenario, you may be eligible to claim a tax offset of up to $540 per year if you meet certain eligibility criteria as outlined by the ATO.
To give you a rough idea, to be eligible for the maximum offset of $540 you will need to contribute a minimum of $3,000 and your partner’s annual income needs to be $37,000 or less. Once your partner’s income reaches $40,000 you will no longer be eligible to make contributions for them.
These are another type of non-concessional contribution so also subject to the total non-concessional contribution cap detailed above.
7. Spouse Superannuation Contribution splitting
Splitting your super contributions simply means you transfer some of your super contributions for the previous financial year to your spouse’s account – perhaps to eg help balance your super accounts. To do this, you will need to check with your superannuation provider if they offer contribution splitting. It is important to note that only concessional contributions can be split. Non-concessional contributions are not eligible for spouse superannuation splitting.
As with all contribution methods, there are certain eligibility criteria that need to be met. These include:
- Your spouse must be under the age of 65 and not retired.
- You must either be legally married to or in a relationship that is registered under certain state/territory laws.
- You must be living together as a couple.
- Your spouse must have a Total Superannuation Balance (TSB) that is less than the general transfer balance cap, at the end of 30th June of the previous financial year. ($1.6M at 30 June 2020 for 2021 contributions)
Super splitting is a complex strategy and before going ahead, we advise that you consider seeking professional advice. If this is something you are thinking of, or have questions about, please contact our team.
8. Government co-contributions
In some circumstances, you may be eligible for the super co-contribution from the government. This is when the government makes a super contribution for you of up to a maximum $500. If you are eligible and have a Tax File Number (TFN), the government will automatically pay the funds into your account and there is no need to apply for this.
There are various eligibility criteria including income tests – call us for more details.
9. Downsizer contributions
If you are aged 65* years or older, are selling your home which you have owned for more than 10 years and meet the eligibility criteria, you may be able to make downsizer contributions into your superannuation of up to $300,000 each from the proceeds of selling your home.
*The May 2021 Federal Budget has announced a proposal to reduce the age limit to 60 from 1 July 2022.
10. Small business CGT contributions
Small businesses may be entitled to a range of tax concessions on capital gains and may be able to contribute a certain amount of capital gains into their superannuation to reduce their amount of taxable capital gains.
There are very complex eligibility criterion that must be met to be eligible to use the Small Business CGT concessions so please talk to us for more details.
Where to now?
If you would like more information and advice on how to proceed with boosting your superannuation, give our friendly team a call on 02 6232 4588 or email firstname.lastname@example.org.
We will be happy to help and support you in every way so you can reach your retirement goals.
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.