In this blog article, accountants at Uplift Accounting shares top 6 tax saving opportunities with super to save you more tax in the next tax time.
30 June will be here before you know it. So now is the time to look at what you can do to minimise your tax bill.
Knowing how much tax you can save by taking a few right steps brings you peace of mind. You will be comfortable making the best financial or investment decisions to liberate your lifestyle.
Perhaps, you may just want to go on a family holiday or buy a new car. Imagine, using your tax savings every year to help you achieve your goals and reach your dreams.
Remember, there are a few solid tax planning strategies that you could use rather than just spending your hard-earned money to get a tax deduction with the hope of reducing your end of the year tax bill. We are not saying here that it is not a good strategy to plan your tax deduction early on if that is your personal choice. There are other better ways to reduce tax.
The following top 6 tax-saving opportunities will help you put more money back in your pocket!
1. Sacrifice your salary to superannuation
A salary sacrifice arrangement or what is commonly referred as salary packaging is an arrangement between an employer and an employee, where the employee agrees to forgo part of their future entitlement to salary or wages. This is in return for the employer providing them with benefits of a similar value.
Salary sacrificed super contributions under an effective salary sacrifice arrangement are considered employer contributions. These are not fringe benefits when paid for an employee to a complying super fund.
If your annual income is $45,000 or more in 2021 tax year, salary sacrifice can be a great way to boost your superannuation and pay less tax. By putting pre-tax salary into super rather than having it taxed as normal income at your marginal rate you may save tax. This can be especially beneficial if you are planning your retirement. However, you will need to make sure that your personal and employer contributions don’t exceed the $25,000 concessional contribution cap, as any amount over this cap will be taxed at the top tax bracket.
2. Boost your super with personal contributions
While you might not be flush with cash now and able to put large amounts into superannuation, it’s important that you are aware that making a personal contribution can maximise your super balance whilst possibly reducing your tax at the same time. You may transfer some of your savings into super as a lump sum by 30 June and claim a tax deduction. However, this is only an effective strategy if you haven’t yet exceeded $25,000 concessional contributions cap, as any amount over this cap will be taxed at the top tax bracket. If you want to claim (or vary) a tax deduction for personal contributions, you must provide a valid notice of intent to your super fund or retirement savings account (RSA) provider. You must have this notice acknowledged (in writing) by your fund.
3. Deductible super cap and carried forward contributions
As mentioned lightly in earlier points, the tax-deductible super contribution limit (or “cap”) is $25,000 for all individuals. To save tax, consider making the maximum tax-deductible super contribution this year before 30 June 2020. The advantage of this strategy is that superannuation contributions are taxed at between 15% to 30% compared to typical personal income tax rates of between 34.5% and 47%.
However, from 2019–20, there is a rule that allows you to make extra concessional contributions – above the general concessional contributions cap – without having to pay extra tax. Super fund members can use any of their unused concessional contributions limit (or cap) on a rolling basis for five years. This means if you don’t use the full amount of your concessional contribution cap ($25,000 in both 2019 and 2020), you can carry forward the unused amount and take advantage of it up to five years later. Carry-forward contributions are calculated on a rolling basis over five years, but any amount not used after five years expires. These carry-forward rules only relate to concessional contributions into super, not non-concessional contributions, as they have different caps.
To use your unused cap amounts you need to meet two conditions:
- Your total super balance at the end of 30 June of the previous financial year is less than $500,000.
- You made concessional contributions in the financial year that exceeded your general concessional contributions cap.
4. Spouse super contributions
You can make super contributions on behalf of your spouse (married or de facto), provided you meet eligibility criteria and your super fund allows it. This is
known as contribution splitting. Doing this not only helps to boost your spouse’s retirement savings, but it can also help you save tax if your spouse has limited income.
You may be eligible for a tax offset of up to $540 on super contributions of up to $3,000 that you make on behalf of your spouse if your spouse’s income is
$37,000 p.a. or less. The offset gradually reduces for income above $37,000p.a. and completely phases out at $40,000 p.a. and above. Again, make sure that you don’t exceed the $25,000 concessional contributions cap.
5. Government co-contribution to your super
If you are on a lower income and earn at least 10% of your income from employment or carrying on a business and make a “non-concessional contribution”
to super, you may be eligible for a Government co-contribution of up to $500. In 2021 tax year, the maximum co-contribution is available if you contribute $1,000 and earn $39,837 or less. A lower amount may be received if you contribute less than $1,000 and/or earn between $39,837 and $54,837.
6. Additional tax on super contributions by high-income earners
Division 293 tax is an additional tax on super contributions, which reduces the tax concession for individuals whose combined income and contributions are greater than the Division 293 threshold. Division 293 tax is charged at 15% of an individual’s taxable contributions.
From 1 July 2017, the income threshold at which the additional 15% (‘Division 293’) tax is payable on super $250,000 p.a.
Where you are required to pay this additional tax, making super contributions within the cap is still a tax-effective strategy. With super contributions taxed at a maximum of 30% and investment earnings in super taxed at a maximum of 15%, both these tax points are more favourable when compared to the highest marginal tax rate of 47% (including the Medicare levy).
Accountants at Uplift Accounting are qualified to provide advice on how to maximise your tax deductions. If you would like to book in a consultation with us for your tax planning prior to the tax time, please contact us here.
About Uplift Accounting
Uplift Accounting is a boutique tax practice headquartered in Mulgrave, Melbourne. A team of qualified and well-experienced tax accountants, bookkeepers and mortgage brokers in Uplift Accounting will help you navigate your personal and business tax affairs smoothly.
We serve our local communities in Mulgrave and surrounding suburbs: Notting Hill, Dandenong, Dandenong North, Glen Waverley, Mount Waverley, Chadstone, Clayton, Oakleigh, Springvale, Wheelers Hill, Noble Park, Hughesdale, Clarinda, Huntingdale, Bentleigh East.
Our office in Croydon serves the local communities in Croydon and surrounding suburbs: Ringwood, Nunawading, Bayswater, Chirnside Park, Mooroolbark, Croydon, Mitcham, Lilydale, Croydon South.
With the use of modern technology, we help individuals and businesses all across Australia. Online accounting and bookkeeping combined with our virtual communication technologies have given us the edge to meet our client needs without physically meeting them in our offices.
To learn more or book an appointment, contact us.