End of financial year 2020-21 – Super strategies
Every year in May and June we all start realising – “Another year has gone by; I have hardly paid attention to tax and superannuation – is there anything that I can do to improve my super and reduce tax”.
Today I want to show you 4 strategies that will provide:
- Tax reduction
- Improvement of your super balance
But wait till the last strategy to find out, how you can make 50% capital return guaranteed immediately.
Curious? Keep reading….
1. Personal contributions for which you claim tax-deduction
This is a type of contributions can be used to invest a lump-sum just before the end of the financial year, when you know your budget surplus, your annual income for the year and the approximate tax payable.
When to use this strategy:
- If you are self-employed,
- If you sold a major asset and could be paying CGT
- If you have no salary sacrifice arrangement with your employer
- If you have extra savings that can be locked away in super and you also expect a high tax bill
- If you want to make “Catch-up” contributions – otherwise known as “Carry-forward” contributions, and you have sufficient cash available to invest into super.
Don’t forget that doing this type of contribution, you need to advice your super fund of your intention to claim tax deduction for contributions made. Your contributions together with the notice of your intent needs to be received by the super fund prior to 1st July and please do not count on making in the last day of the financial year, as your funds may not be received on time by your super fund.
Also, you need to receive an acknowledgement from your fund before you lodge your tax return.
2. Salary Sacrifice
Salary sacrifice is a brilliant way of saving within your superannuation environment, which not only allows you to save tax, but contribute to your super fund extra money, It is via an agreement with your employer, where you sacrifice portion of your income to be paid as extra over and above your employer compulsory contributions from your pre-tax income. Your tax savings comes from the difference between your MTR and a super contribution tax rate of 15%. The higher your income, the bigger the difference, the greater your tax saving.
To understand all little details of Salary Sacrifice arrangement and benefits, watch my video “Salary Sacrifice – tips, traps and benefits”.
If you are in a financial position to set up salary sacrifice, organise this now for the new financial year, so talk to your employer or your payroll department, arrange it before 30th June and enjoy your tax savings in the next financial year as well as fantastic growth of your super savings.
3. Spouse Contributions
This one strategy is very much disregarded by most families, and it is money saved in your pocket.
If your spouse’s income is below $37,000, contribute $3,000 or more to your spouse’s super as “spouse contribution” and you could be eligible for $540 tax offset.
OK, maybe that’s not money into your hand, but that’s always $540 less of tax that you pay otherwise to the tax office. That is an immediate reduction of your personal tax bill by $540.
If your spouse’s income is greater than $37,000, you could still be eligible for a partial tax offset, but once the income is above $40,000, you will no longer be eligible for tax refund.
4. That’s the big one, we are all waiting for – how to get an immediate 50% return on your investment – guaranteed?
If you are a low or a middle-income earner and you make and after-tax contribution to your super fund, and you do not claim a tax deduction for that part of your contributions, you might be eligible for a government co-contribution of up to $500.
So, if you total income is equal or less than $39,837 om 2020/21 and you make a non-concessional contribution of $1,000, you will also receive a government co-contribution of $500.
So basically, with zero risk, no investment has even been made, you’ve just contributed $1,000 to your super, government will add extra $500 – as far as I can count, that is a guaranteed, zero risk return on your $1,000 contribution of 50%.
If your income is slightly higher, between $39,837 and %54,837 in 2020/21 financial year, your co-contribution will reduce progressively, but it is still worth doing, as co-contribution is your free money.
But one thing is contribution, the other is what to do with my money and how to invest it. I have created an eBook: “12 Principles of Investing”, with many investment suggestions and recommendations, so feel free to download it and apply to your investing decisions.
Some extra important information you need to consider:
- There are limits on how much you can contribute to super. Please do not go over those limits as penalties may apply,
- Contributions need to be received prior to 30th June for you to be able to claim tax deduction, tax concession or apply any of your strategies to your current tax return.
- Be careful with a total super balance cap of $1.6mil of non-concessional contributions. That cap limit will increase to $1.7 in the next financial year. If you exceed the cap, you will not be able to make any non-concessional contributions and you may not qualify for other government concessions.
- If you are over the age of 67, a work test applies to you if you wish to make voluntary contributions.
- There is a limit on how much super you can transfer into a pension and upcoming changes could impact whether you move super balance now or later.
- In order to have access to your super savings you have to meet conditions of release, such a retirement for example, so be aware that until you do, your savings are “stuck” within a super environment.
There is still time for you to review your current tax and super position and apply one or more of those strategies that will give you and immediate of future benefit, but most certainly improve your overall financial outcome.
If in doubt, always feel free to reach out and ask me a question.
To Your Financial and Life Success 😊
By: Katherine Isbrandt CFP®
Money Strategist & Retirement Planner
Principal of About Retirement
