It’s June already, which means it’s almost tax return time. Arguably the best way to maximise your tax deductions is to maximise your super contributions. Read on to find out our top tips to help you boost both your tax deductions and your super nest egg at the same time.
Tip 1: Make a voluntary contribution up to your contribution cap
If you’re still working for an employer, you’ll be getting the compulsory super guarantee of 10.5% of your ordinary time salary or wages paid into your super fund. This amount is NOT tax-deductible, but if you make a voluntary, additional, after-tax contribution before June 30, then you can claim that amount as a tax deduction.
The higher your marginal tax bracket, the bigger the tax deduction.
The maximum amount you can contribute each year from after-tax income is capped at $110,000. This is called the non-concessional contributions cap. However, you can contribute up to three times that amount in any one year by ‘bringing forward’ the cap for the next two years.
If you’re self-employed, you won’t be receiving any compulsory super guarantee from an employer. However, You can choose to make a pre-tax, voluntary contribution to your super up to your concessional contribution cap.
Because super is taxed at the concessional rate of just 15% in Australia, there is a cap on the amount of pre-tax income that you can contribute in any one year. That cap is $27,500 for this financial year. But if your total super balance is less than $500,000, you can also contribute any unused concessional cap amount from the previous five years on top of the $27,500.
If you’re going to do any voluntary, after-tax super contribution (whether you’re an employee or self-employed), then make sure you do Tip 2 below as well.
Tip 2: Download and send this form to your super fund ASAP
Before you make your pre-June 30 voluntary super contribution, download this ‘Notice of intent to claim or vary a deduction for personal super contributions’ form from the Australian Taxation Office (ATO).
Complete this form and send it along with your payment to your super fund before June 30. Don’t send the form to the ATO. Instead, claim the amount as a tax deduction on your tax return.
Tip 3: Make a downsizer contribution
If you’re like one of the thousands of Australians over 55 who have downsized their home in retirement (or as you’re approaching retirement), then you can make a downsizer contribution of up to $300,000 of the proceeds of the sale of your previous home into your super fund.
This contribution must be made to your super fund within 90 days of the sale date. You must also download a ‘Downsizer contribution into super form’ from the ATO and complete it. This form must be sent to your super fund along with your downsizer contribution (i.e. it is not sent to the ATO).
The bottom line
If you’re on the brink of retiring, you can take maximum advantage of the generous tax deductions that are available for super without locking your money away for years like you had to when you were younger. It’s one of the perks of getting older!
IMPORTANT: You should get independent and professional financial advice to help you decide the best strategy based on your specific financial situation and needs.
Want to learn more about making the most of your next 30 years?
Retirement living can be the best time of your life.
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