Superannuation is the most tax effective investment vehicle for retirement savings. By contributing extra money yourself, even if it is small amounts over time, may help to grow your super considerably.
So if you have any spare cash on hand this end of financial year, you might like to consider making a personal contribution to your super. By doing this, you may be able to pay less tax while saving more for your future.
How do after-tax super contributions work, and what are the benefits?
If you’ve made, or plan to make, an after-tax contribution into your super, you may be able to claim a tax deduction at tax time. You can make an after-tax super contribution a variety of ways, such as using money from your regular bank account, savings, an inheritance, or from the proceeds of the sale of an asset.
The benefits of topping up your super through personal contributions is that once your savings are in the super environment, investment earnings are taxed at 15 per cent, which is often lower than what most people pay on their taxable income. These tax benefits could make a big difference when you eventually come to withdraw your super savings and retire.
What do I need to do to claim a tax deduction on a super contribution?
If you’d like to benefit from a tax deduction on your personal super contributions this EOFY, you’ll need to:
1. Make an after-tax contribution to your super
The after-tax amount you choose to contribute is up to you, but remember you cannot contribute more than $25,000 per year under the concessional contributions cap if you wish to claim a tax deduction – or penalties will apply. Keep in mind, personal tax-deductible contributions are not the only contributions that count towards this cap. Other contributions that count towards this $25,000 limit include compulsory contributions paid by your employer, contributions from any other jobs, salary sacrifice contributions, and notional taxed contributions if you’re a member of a defined benefit fund.
Note: If you are aged 65 or over, you will need to meet a work test before being able to make voluntary super contributions, meaning you must have been gainfully employed during the financial year for at least 40 hours over a period of no more than 30 consecutive days.
Make sure you don’t leave your top-up contributions to the last minute as the ATO takes the view that your funds need to be received by June 30 for it to be considered a contribution for this year.
2. Lodge a form with your super fund
To claim a tax deduction, you’ll need to lodge this notice of intent form with your super fund, and have it acknowledged by them prior to lodging your tax return.
Also note, you shouldn’t make any withdrawals or start drawing a pension from your super before your notice of intent form has been lodged with your super fund.
3. Have the paperwork ready when you do your tax return
Once the financial year is over, you can prepare and lodge your tax return using the written acknowledgement from your super fund that confirms your intention to claim and the amount you can claim.
Remember, you normally have until 31 October to lodge your tax return for the previous financial year.
What if I want to contribute more to super, and save more for retirement?
If you wish to top up your super even further, you are able to make extra contributions to your super that are not tax deductible. You can contribute up to $100,000 in non-concessional (after-tax) contributions to your super (i.e. topping up your super with money you have already paid income tax on and won’t be claiming a tax deduction for).
If you are under age 65 you can bring forward up to 3 years of the non-concessional cap, allowing you to contribute up to $300,000 at a time depending on your super balance. For more information about non-concessional contributions, visit the ATO’s website.
DID YOU KNOW: You may be eligible for a government co-contribution?
If you are a middle-to-low income earner, you may also benefit from a government co-contribution if you add to your super from after-tax money. To be eligible, you need to earn less than $52,697 in the 2018/19 financial year, be aged below 71, and have a super balance of less than $1.6million.
The maximum co-contribution of $500 is available if you earn less than $37,697 and if you have made a contribution to yourself of at least $1,000. The co-contribution steadily reduces as your income rises and until it reaches zero at an annual income of $52,697.
DID YOU KNOW: You can top up your partner’s super?
If your partner is earning a low income or taking time off work, then it’s likely they’re not earning much super, which means their super could fall behind.
Luckily, there are ways you can help your partner’s superannuation continue to grow. Spouse superannuation contributions can be made for spouses earning up to $40,000 per year. If your spouse has earnings below $37,000 you can claim the maximum tax offset of $540 when you make an after-tax contribution of $3,000 or more into to his/her super. The tax offset is progressively reduced until it reaches zero for spouses who earn $40,000 or more in assessable income in a year.
DID YOU KNOW: You can top up your super from the sale of your house?
Under the Downsizer Super Contribution scheme, if you’re aged 65 or over and are looking to boost your retirement savings you may be able to contribute up to $300,000 (up to $600,000 for a couple) towards your super from the sale of your main residence. Another benefit of this scheme is that annual concessional (before tax) and non-concessional (after tax) contribution caps do not apply to these downsizer contributions. In fact, downsizer contributions can be made in addition to any concessional and non-concessional super contributions you may be eligible to make.
If you have any questions on how you can maximise your super contributions before the end of this financial year, get in touch with us today on 1300 850 757 or email us at GBSAU_Admin@ajg.com.au.