Why Additional Super Contributions Benefit You At Tax Time

May 27th 2023 | Categories: Tax |

The end of the financial year marks the start of tax time but before then it’s beneficial to assess your super contributions in order to maximise your tax benefit and grow your super balance. We encourage you to make any additional super contributions before June 10 to ensure your payment is received in time and your superannuation balance is adjusted before the June 30 cut-off. Below we discuss the various types of superannuation contributions that you can make as well as strategies to help boost your return.  

Why Make Additional Super Contributions?

Your employer must pay 10% of your pay towards superannuation however you may wish to make additional contributions on top of this. The benefit of making additional contributions is twofold. Firstly, there are savings you can make on tax, as super contributions are taxed at 15% compared to your personal tax rate. Secondly, the more you invest and the earlier you invest, the more you will have for your retirement. The tax benefits offered for contributions made to your superannuation fund are capped. The super contributions up to $27,500 per financial year are taxed at 15%, while any contribution above the limit attracts additional tax. If you have some extra savings you want to invest for your retirement, you earn more than $57,016 and have less than $1.7M in your super fund, then extra contributions may be something you want to consider.  

Pre-Tax and After-Tax Super Contributions

In addition to the mandatory employer contributions to your super fund, you can also make extra super contributions. If you earn more than $57,016 per financial year, it could be beneficial to make extra contributions to your super account to save for retirement and obtain tax benefits.  

• Pre-Tax Super Contributions: Pre-tax contributions are taken out of your salary before you get paid, this means your taxable salary will be reduced and will provide you with a higher tax benefit. You can make extra contributions to the super fund by asking your employer to pay a part of your pre-tax salary into the super account. These contributions are termed as salary sacrifice or salary packaging and are taxed at a concessional rate of 15%, irrespective of your normal tax rate. However, please remember that the total employer contributions and salary sacrifice cannot be more than $27,500 per year.
• After-tax Super Contributions: The other alternative is to pay into your super fund from your after-tax salary. These super contributions are termed non-concessional as taxes have already been paid on your funds. You may be able to claim a tax deduction for personal contributions made from after-taxed dollars, but before you can claim you must have given your super fund a notice of intent to claim or vary a deduction for personal contributions form (NAT 71121) and received confirmation from your fund. You can contribute up to $100,000 per financial year as after-tax super contributions if your superannuation balance is less than $1.6 million at the beginning of the financial year. The after-tax contributions made above the cap of $27,500 do not attract tax benefits; however, your savings will be working hard in the super investment environment.

Strategies to Grow Your Super Contributions

Superannuation funds and super contributions form a strong foundation for life after retirement. If your super contributions are well managed, you can not only save taxes but also save more for your retirement. The following strategies can be used effectively to manage your super contributions and grow your investment balance.  

• Salary Sacrifice and One-off Super Contributions: The first strategy is to make additional contributions to your super account, either from pre-tax salary as salary sacrifice or from after-tax salary as one-off contributions. Both methods add to your post-retirement savings and can be tax advantageous. Your monthly take-home salary reduces, but your savings in your super account rise considerably. If you hadn’t set that up for this year but think you may want to for next, speak with an Adviser to understand the impacts of that choice and then work with your employer.
• Government Super Co-Contribution: If you earn less than $57,016 per financial year, you may be eligible for a low-income superannuation tax offset of up to $500 per year. Additionally, those who earn between $39,837 and $53,837 during the 2020-21 financial year may also be eligible for super co-contributions from the government of 50 cents for each dollar up to a maximum of $1000 in after-tax contributions.
• Super Contributions on Behalf of Spouse: If your spouse earns less than $37,000 per financial year, you can make a super contribution to their super account to boost their retirement savings and earn a tax deduction for yourself. Super contributions of up to $3,000 into a spouse’s account can earn tax benefits of up to $540. Additionally, you may also submit a request to split your super contributions with your spouse to even up any significant balance differences.
• First Home Super Saver Scheme (FHSSS): Your super contributions can usually not be accessed before retirement. However, under the FHSSS, you can withdraw a portion of your voluntary concessional super contributions to purchase your first home. You can withdraw up to $15,000 per year, or $50,000 in total, of your voluntary contributions to your super fund to reduce house affordability pressure. If you are purchasing with a partner, you can double those figures so between you there is up to $100,000 available to help with the initial costs of buying your first home.
• Downsizer Super Contributions: If you are selling a family home that you have owned for ten or more years, you may contribute up to $ 300,000 of the sales proceeds into your superannuation fund. This amount does not form a part of the pre-tax or after-tax contribution caps and can help you save more towards your retirement.

It is essential to assess your super balance, super contributions, and strategies before the end of the financial year to avoid last-minute stress and maximise your tax benefit. An adviser can work with you to implement the best super contribution strategy for you. They can also review your super balance, check the insurance cover, assess your financial situation and ensure you are on the right path to retiring comfortably.  

Want to make additional contributions? Speak with a Financial Adviser as soon as possible to ensure the paperwork can be processed in time.

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What you need to knowThis information is provided by Invest Blue Pty Ltd. (ABN 91 100 874 744). The information contained in this article is of general nature only and does not take into account the objectives, financial situation or needs of any particular person. Therefore, before making any decision, you should consider the appropriateness of the advice regarding those matters and seek personal financial, tax and/or legal advice before acting on this information. Read our Financial Services Guide for information about our services, including the fees and other benefits that AMP companies and their representatives may receive in relation to products and services provided to you.