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Superannuation and Tax Planning Strategies

With the end of another financial year fast approaching (yes, we are already at the end of the 3rd quarter), now is a good time to plan ahead and make the most out of your superannuation before 30 June.

Although the concept of superannuation can seem complex and overwhelming, super contributions can be important for both retirement planning and tax planning.

We will look to discuss the different types of super contributions and how they can support both tax planning (before the end of the financial year) and retirement planning.

It is important to note that everyone’s individual circumstances are different. As such, we recommend seeking personalised advice from a trusted business adviser or specialist to discuss the best options applicable to your own personal situation.

Superannuation Contribution Types

In terms of contributing funds into super, there are different options available, each with their own conditions and benefits. The relevant contribution caps and rules can change year on year, making it essential to familiarise yourself with the most up-to-date information.

Concessional Contributions

Concessional contributions are the contributions made to your super fund before they are taxed.

Concessional contributions are taxed at a concessional rate of 15%, which is lower than most taxpayers’ marginal tax rates. As such, concessional contributions can be an effective tax planning strategy and option to grow your super balance.

Concessional contributions include:

  • Superannuation guarantee contributions (SG)
  • Salary-sacrificed contributions
  • Personal concessional contributions

If you are employed, your employer is required to contribute Superannuation guarantee (SG) to your super fund, on your behalf. The SG contribution rate for the 2024 financial year is currently 11% and will increase to 11.5% from 01 July 2024.

Salary-sacrificed contributions are also another way to make concessional contributions. In this instance, you and your employer can agree on a salary sacrifice arrangement to have a portion of your salary or wages to be contributed to your super fund (instead of to you). In effect, the salary sacrificed amounts are taxed at the concessional rate of 15% rather than your marginal tax rate.

Whether employed or self-employed, you can voluntarily make personal contributions to your super fund. You can choose to treat the personal contributions as personal concessional contributions and claim a deduction in your tax return for the amounts personally contributed. In doing so, the personal contributions are effectively taxed at the concessional rate of 15% rather than your marginal rate.

It is worth noting that taxpayers aged 67-74 will be required to meet the work test or work test exemption to claim a deduction for personal concessional contributions in their tax return.

The maximum amount of concessional contributions you can make (concessional contributions cap) for the 2023 financial year is $27,500.

However, if your total superannuation balance is less than $500,000, you may be able to carry any unused concessional cap amounts from previous years (up to the 5 previous years). Therefore, it may be possible to contribute more than $27,500 in concessional contributions in a single financial year.

Please note that there are additional eligibility criteria that taxpayers aged 75 years or older must satisfy before making concessional contributions.

Non-Concessional Contributions

Non-concessional contributions are also another option to grow your super balance. Unlike concessional contributions, non-concessional contributions are made to your super fund after-tax (after they have been taxed at your marginal tax rate). You can generally make non-concessional contributions up to $110,000 per year.

Depending on your age and superannuation balance, you may be able to access the bring forward rule which allows taxpayers to utilise up to 3 years’ worth of the non-concessional cap in one financial year (i.e. contribute up to $330,000 in a single financial year).

Tax Planning Strategies for Super

Tax planning strategies for superannuation generally involves increasing the concessional contributions you make before the end of a financial year. Depending on your personal circumstances, increasing concessional contributions can be an effective tax planning strategy.

Topping up Concessional Contributions

Making additional concessional contributions via a salary-sacrifice arrangement or personal contributions into your super fund can reduce your income tax payable.

By electing to sacrifice a portion of your salary into super via an arrangement, the amount sacrificed would be taxed at the concessional rate of 15% instead of your marginal tax rate.

By making personal concessional contributions and claiming a tax deduction for the additional amounts contributed, the personal contributions are effectively taxed at the concessional rate of 15% instead of your marginal rate.

Therefore, if your personal marginal tax rate is higher than 15%, you are paying less tax on the additional concessional contributions.

However, when considering whether to contribute more funds into super, it is worth noting that you are essentially locking the funds away until you meet a condition of release (generally, you will need to reach the age of 60 before meeting a condition of release).

Whether or not contributing additional funds into super is the right strategy for you, will depend on your personal circumstances. It is important to consider your age, income, living costs, current and future plans (i.e. mortgage repayments, raising children etc.).

For taxpayers with an adjusted taxable income over $250,000, you will also need to consider the Division 293 tax which will essentially take the tax rate on your concessional contributions from the standard rate of 15% up to 30%.

Other Important Points with Super Contributions

There are a few items to keep in mind when deciding to contribute amounts to your super fund:

  • Check the contribution caps for the current year (both concessional and non-concessional caps).

  • Check the contributions made on your behalf year-to-date (i.e. super guarantee contributions from an employer).

  • Determine how your contributions are to be treated (i.e. concessional, non-concessional or a combination of both).

  • Prepare and submit a notice of intent to claim deduction form (to your super fund), if making personal concessional contributions.

  • Ensure you have allowed enough time for your contribution to be processed by your fund before 30 June, to be included within that financial year (processing may take up to 10 days).

  • Consider the implications of Division 293 tax (additional 15% tax on concessional contributions for higher income earners) if your income is likely to exceed $250,000.

  • Seek professional advice if you are unsure about anything in relation to super contributions.

The avenues available for your superannuation can be tricky to navigate and it is an area you want to make sure you get right. We encourage you to discuss your situation with a business adviser by early June. A chat with our team at BLG will ensure you have all the necessary information specific to your circumstance to make the best decision for you. We are Wollongong Accountants who service right across Australia and there are many opportunities to explore, so talk with us today.

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*Please note that the above information is general advice only. We recommend you seek advice from a specialist relevant to your personal situation. This information is relevant at the time of publishing and is subject to change*
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