There are some excellent tax benefits from superannuation contributions – you can take advantage of these by making your own voluntary superannuation contributions.
We want you to take advantage of all opportunities available to you to help minimise the amount of tax you have to pay.
Tax benefits from Superannuation Contributions
Money invested in super is taxed at a lower rate (15%) than your personal income tax rate so there are several ways you can get tax benefits from making additional super contributions.
How are concessional Super Contributions taxed?
Concessional (before tax) super contributions include employer super contributions made on your behalf, any salary sacrifice contributions you make, or any personal contributions that you claim are a tax deduction in your tax return.
Maximise deductible Super Contributions
Providing your annual earnings combined with superannuation contributions are less than $250,000 annually, these contributions are taxed at 15%. Be mindful, the annual contribution limit is $27,500 per year including employer contributions – but this excludes catch up contributions (see below).
Personal super contributions are especially useful for people who are on higher marginal tax rates or if their employer refuses to set up a salary sacrifice arrangement.
The people who would benefit the most are those who earn above $45,000 per year, as this is where the marginal tax rate plus Medicare Levy rises to 34.5%. Claiming a tax deduction on super contributions effectively makes your tax rate only 15%. That’s a big tax saving!
Catch Up Super Contributions
From 1 July 2018, people can make “carry-forward” concessional super contributions if they have a total superannuation balance of less than $500,000. People can access their unused concessional contributions caps on a rolling basis for five years. Amounts carried forward that have not been used after five years will expire.
How are low-income earners are taxed?
If you’re a low-income earner (earning up to $37,000 per year), the low-income superannuation tax offset ensures that you don’t pay a higher rate of tax on your super contributions than your income tax rate. The offset will be paid directly to your super account and the payment will be equal to 15% of your concessional contributions for the year, capped at a maximum of $500.
Individuals who earn between $41,112 and $56,112 during the 2022 financial year may also be eligible for super co-contributions from the government of 50 cents for each dollar, up to a maximum of $1,000 in non-concessional (after tax) contributions.
How are High-Income earners are taxed?
If you earn more than $250,000 a year (including super contributions), your concessional contributions are taxed at an additional 15%, bringing the total tax on these contributions to 30% – this is still less than your individual income tax rate of 47% so there are tax saving to be made.
This extra 15% is known as Division 293 tax. Only the concessional contributions which make your total income exceed $250,000 are subject to the additional tax.
If your concessional contributions exceed the concessional contributions cap of $27,500 per year, the excess is included in your tax return and taxed at your individual tax rate (less an allowance for the 15% already withheld by your super fund). You can choose to withdraw some of the excess contributions to pay the additional tax.
Business with Employees – Pay Employee Superannuation by 20th June.
To claim a tax deduction in this financial year, you need to ensure that your employee superannuation payments are received by the super fund or the Small Business Superannuation Clearing House (SBSCH) by 30 June 2022. As is takes some time to process, we highly recommend you make your SGC payments by the 20th of June.
How can Walsh Accountants help?
If you would like to discuss saving tax with super contributions, contact our team for a confidential discussion specific to your circumstances. There are many things we need to check for you to ensure you don’t exceed your super caps.
You may need to seek the advice of a licenced financial advisor, and you must get the paperwork right plus the timing of your contributions is crucial to get right to entitle you to a tax deduction this financial year.
Content in this article is general in nature and should not be taken as financial advice. If you are interested in this tax planning strategy, please contact our office to speak with one of our Accountants before proceeding any further.