Contribute to Your Super
Would you like a quick tax deduction and to get ahead in saving for your retirement? Currently you can contribute up to $27,500 to your super and claim it as a TAX DEDUCTION. Thinking about your retirement and how quickly it will sneak up on you makes this seriously worth considering.
Super contribution caps from 01/07/2021:
Concessional Contribution (before-tax) Cap means up to $27,500 put into your super is tax deductible but note that this includes any super contributions your employer makes for you as well etc; and
Non-Concessional Contribution (after-tax) - Up to $110,000 can be contributed to boost your super for your retirement savings and can unlock further investment opportunities.
Talk to us to confirm your cap and for more info on how this will benefit you, how much tax you could save and what this could mean for your super balance at retirement.
“For example, if your current net pay is $1,085/wk and you salary sacrifice $50/wk, your new net pay is $1,053/wk. You’ve sacrificed $50/wk into your super but have only lost $32 from your weekly net pay.
The same effect would eventuate if you didn’t salary sacrifice but contributed $2,600 before the EOFY direct to your super fund and claimed it as a tax deduction on your Tax Return. You’ll then receive this tax saving back in one lump sum as a tax refund rather than weekly in your pay.”
Read on for our answers to your frequently asked questions:
Q&A - How To Claim A Contribution
When does my contribution count? When the money is received by your super fund, not when your payment is sent, so make sure you transfer your contribution several days before June 30 to allow for processing time!
Can I carry forward the cap to next year? Yes, you can! From July 2019, your unused cap forward rolls over for up to five years after which it expires. This is part of the ATO's Carry-forward unused concessional contributions scheme. You can take advantage of this to utilise later when the time is right if you can't contribute now, e.g. when your income is higher or you have hte available cash.
The one condition of this is your superannuation balance must be less than $500,000.
How do I do this? Who do I notify?
Step 1: contact your super fund to find out how you can make payment to your super account for a personal contribution e.g. the BPAY details.
Step 2: after EOFY, complete the necessary form to notify your super fund of your intent to claim a deduction for your contribution and how much thereof you wish to claim if not all. This paperwork needs to be completed and an acknowledgement response received back from your fund in a certain timeframe to enable your claim so grab our help on this.
Step 3: claim the relevant contribution amount on your Tax Return at the appropriate label.
We can handle this all for you to make sure you claim correctly. Or contact your employer to ask about salary sacrificing from your wage.
Is there a cut-off age? You must be under 75yrs of age to claim a concessional super contribution. If you’re between 65-75yrs of age, you can only make before-tax contributions if you’re gainfully employed for at least 40hrs over 30 consecutive days during the financial year. The same rules apply for non-concessional (after-tax) contributions, see below for more info.
Q&A - What's Beneficial
Is it always beneficial to claim a deduction for my super contribution? Not always, it depends on your taxable income and whether you want to claim the co-contribution etc. There are several factors to consider when weighing up your options so ask us about your circumstances today.
Is my contribution taxed in my super fund? Yes, at a rate of 15%. It’s a great tax haven to pay tax at a concessional rate rather at than your marginal rate of tax, especially if you earn over $45,000. It depends on your taxable income as to how beneficial this will be for you.
But wait... there’s more. WHAT'S THE LOW-INCOME "SUPER TAX OFFSET"? If your income is under $37,000, you’ll be entitled to the low-income Super Tax Offset where the 15% tax will be credited back, effectively refunding the tax that applies, capped at a $500 offset for the first $3,333 of your claimed contribution. This is an excellent giveback and a boost to your super. It’s important to remember that the tax is refunded back for first $3,333 contributed which if you’re employed for $33,333 per year or more, this will be absorbed by your employer’s contribution in theory so won’t be a factor to consider for your additional contribution.
Q&A - Government Co-Contribution
Will I receive the Government Co-Contribution? *To be eligible for the co-contribution, your assessable income must be less than $58,445 from employment and/or business activities and you can’t claim your contribution as a deduction. The Government will co-contribute up to $500 to your super for an after-tax contribution of at least $1,000 provided your income is under $43,445. The $500 maximum co-contribution then begins to reduce to nil as your income reaches $58K and of course if your after-tax contribution is less than $1,000. Reach out to us if you want help calculating what you can expect as a co-contribution. *Rates are quoted for 2023-24 financial year.
NB: There are other factors that could make you ineligible for the co-contribution, such as: if you exceed your non-concessional contributions cap, if you’re >71 years of age at the end of the financial year, if your total superannuation balance is >$1.6m or if under 10% of your income is from employment or business activities, i.e. 90% of your income is from investment or trust distributions etc.
Do I need to notify my super fund or the ATO to receive the Government Co-Contribution? The ATO will pay to your super account automatically, if you’re eligible, when your Tax Return is lodged so make sure your super fund has your TFN on record. Keep an eye on your super statement if you’re expecting a co-contribution to confirm it’s received. If you have retired, then the co-contribution can be paid direct to you.
If my income is low, should I claim a tax deduction or receive the Government Co-Contribution? *If your income is under $43,445, claiming the co-contribution (max of $500 for a $1,000 contribution) is beneficial to your retirement. If your income is >$45k, this is where claiming your contribution as a tax deduction may best come into play. If you earn less than $43k and put in more than $1k, there are more factors to consider getting the most out of your super contribution so talk to us about what’s best for you as it depends on how much you contribute, if you’re over the tax-free threshold, if your income was from employment or business and so the potential influence of the low-income Super Tax Offset etc. *Rates are quoted for 2023-24 financial year.
Q&A - For Employees
Does the $27.5 cap include the contributions my employer makes for me? Yes. Find out the total your super fund will receive from your employer/s for the financial year and only contribute the difference up to the $27.5k cap as your extra contribution.
For example, if you’re on a $70k salary, your employer is expected to have paid $7,000 in super for you then you can contribute up to $20,500 extra (after confirming with your employer) as a tax deduction to claim.
Can I claim the amount my employer contributes? No, your employer claims this.
What if my employer hasn't contributed to my super? If your super fund has not received any payments for the financial year then you’re free to contribute up to the full concessional cap. However, this is concerning so you should ask your employer about this urgently as it’s required by law to pay an employee’s super on time.
As an employee, do I need to salary sacrifice to claim the contributions I want to make? Not anymore. You can make your contribution/s direct to your super fund if you’d prefer to leave your employer out of it.
What can make salary sacrificing unfair? Prior to January 2020, your employer could reduce the amount of super they pay on your wages by the amount you sacrifice. This is no longer allowed.
How much should I salary sacrifice? Find the sweet spot between how much you sacrifice to super vs the reduction in your net pay as a result (the sweet spot should be sacrificing more into your super than your net pay is reduced!) and working within what you can afford your net pay to be. We can help you run calculations to find the best scenario.
Do I need to notify the ATO or my super fund about the contributions I've salary sacrificed? No, your employer should take this into account on your payment summary. You only need to notify your super fund if you contribute extra personal contributions to claim direct to your fund.
Q&A - Non-Concessional Contribution
Can I contribute more than $27.5k to my super? Yes but any amount >$27.5k is considered an after-tax contribution so not a tax deduction. The current cap for these, known as non-concessional contributions, is $110k/year or if you’re < age 65 you can contribute up to $330k max over three years.
However, if you’re between 65-75yrs, you can only make after-tax contributions if you’re gainfully employed for at least 40hrs over 30 consecutive days during the financial year and you must have a super balance of under $1.7m (in pension phase) of enough to allow for the after-tax contributions without exceeding this $1.7m transfer balance cap once your contributions are made. Ask us more about your super balance to understand how this works.
Would I ever want to make a non-concessional contribution if I haven't exceeded the concessional contributions cap? Usually if your income is >$45k, you would exhaust the concessional contributions cap first claiming a tax deduction, before beginning to use the non-concessional cap.
The main reason you may consider a non-concessional contribution where the concessional cap hasn't first been used would be if you income is <$45k and you're wanting to claim the Government co-contribution and/or you won't receive a tax benefit for claiming a tax deduction for a concessional contribution. Thinking along those lines, you would only make a concessional contribution if it's going to have a tax-effective benefit to you to claim. Remembering that a concessional contribution is taxed in the super fund, whereas a non-concessional contribution is not taxed in the super fund so only allow your contribution to be taxed in the super fund if your benefit outside the fund is greater. See above Q&A - What's Beneficial for more info on this.
What benefit will I get by making a non-concessional contribution? Contributing extra into your super is boosting your retirement savings and investment earning opportunities. Think of the potential investment earnings this money could have inside your fund over the years vs being used by yourself.
Making non-concessional contributions also can form part of a long-term investment and tax-minimisation strategy, especially within a SMSF. For example, if you're considering purchasing a commercial property and want to access part of your available super balance to complete the purchase, then making non-concessional contributions is a vessel to boost your super balance to a position allowing this purchase to happen. Seek our advice for ideas on how you can benefit from this and more.
Tax-wise, an after-tax contribution inside your super fund becomes part of the tax-free component which means if you withdraw from your super before the age of 60, this portion will be tax-free. That said, if you begin to withdraw your super after the age of 60 as most effective, your super drawings are all often tax-free anyway, regardless of whether your super balance is made up of concessional (taxable in the fund) or non-concessional contributions (tax-free in the fund).
Can I salary sacrifice after-tax contributions? You certainly can. You can salary sacrifice both before and after-tax contributions if you want. Make sure to let your employer know if your salary sacrifice is before or after-tax and the breakdown if you're salary sacrificing both so they can notify your super fund correctly.
Q&A - Benefits to Contributing for my Spouse
Can I contribute into my spouse's super? The same concessional cap will apply to your spouse for them to claim a tax deduction but if you contribute on their behalf and your spouse’s income is under $45k, you can receive an 18% tax offset (capped at $540 for the first $3k you contribute). A handy $540 tax offset for you! This tax offset amount gradually reduces to nil if your spouse’s income reaches or exceeds $40k.
Q&A - Prior Year Caps
Has the concessional contributions cap always been $27,500? No, it increased from $25,000 as a result of indexation in July 2021 As did the non-concessional contribution which was $100k Contact us about the prior year caps if you’re unsure how this affects you and your previous financial year’s tax.
Check out the below snippet of the concessional contribution caps across the years.
Q&A - Exceeding the Caps
What happens if I exceed the caps? You’ll pay more tax, not a good idea.
If you exceed the concessional-contribution caps, you can claim it sure but the excess will be included in your tax return (along with an interest charged by the ATO) and taxed at your marginal rate of tax. The excess is treated as a non-concessional contribution and becomes part of that cap.
WHAT HAPPENS IF you exceed the non-concessional cap? You’ll need to withdraw it back out from your super fund (taking the money back and correcting the exceeded cap) and any earnings it attracted and those earnings are included in your tax return and taxed at your marginal rate. If you don’t withdraw the excess contributions, they’ll be taxed at the top rate of 47%.
Make sure your super fund has your TFN to avoid any delays or processing issues of your contributions.
Time to talk to a financial planner? Let us know, we can introduce you while advising on the tax impacts on any decisions.
“When contributing to super, whether before-tax, after-tax, whether directly or via salary sacrifice and in any financial year, always consider the relevant Caps and seek our advice to find out what’s best for your tax savings and financial future.”
Happy contributing!