We all know that our employer must contribute 9.5% of our wages into superannuation on our behalf. But I often get asked whether it will be enough to comfortably retire. In this post, I’ll go through the ways you can boost your superannuation balance.
Concessional super contributions – Limit: $25,000
The first and most common to boost your super is by making a Concessional super contributions. These are the contributions for which you can get a tax deduction. The total amount which can be contributed is $25,000. This amount includes:
- Your employer’s 9.5% of wages contributed as superannuation guarantee.
- Amounts which are salary sacrificed as part of an agreement with your employer.
- Personal deductible amounts which you make directly to your superannuation fund. These are claimed as a tax deduction in your tax return (this has changed from 1 July 2017. Previously you could not make a personal deductible contribution unless you income was predominantly from investment or business income).
The total of these amounts cannot exceed $25,000 in a year.
However from 1 July 2018, you will be able to carry forward part of your unused concessional contributions cap. There are a couple of restrictions:
- Amounts can only be carried forward for five years on a rolling basis.
- You must have a superannuation balance at 30 June of the previous financial year of less than $500,000.
If you are going to claim a tax deduction for a super contribution, you must notify your fund that you intend to do so. This must be in the approved format (“Notice of Intent to claim or vary a deduction for personal super contributions”). If you have a large super fund, they will have a copy of the form you need to complete, so call you fund or check out their website. If you have a Self Managed Superannuation Fund (SMSF), you can use the Tax Office’s standard form.
This should be submitted by the earlier of as soon as possible after the end of the financial year but at least before you lodge your income tax return. Once you have submitted the form, you must also receive a written acknowledgement from your fund before you claim the deduction on your tax return.
Non-concessional super contributions – Limit: $100,000
These contributions you make after tax. You don’t get a tax deduction and your super fund doesn’t pay tax on the contributions. The maximum amount you can contribute each year is $100,000.
If you are under 65 years of age, you can bring forward up to 2 years of your non-concessional cap, allowing you to contribution up to $300,000 at a time providing your superannuation balance is less than $1.6 million at the end of the financial year.
Government co-contributions – up to $500 available
If you earn less than $37,697 for the year, the government will contribute $0.50 to your fund for every $1 you contribute. If you contribute $1,000, the government will contribute $500 to your fund. If you earn more than $37,697 but less than $52,697, the amount of co-contribution is scaled back. After $52,697 no amount can be claimed.
In order to receive the co-contribution, you must lodge a tax return and have provided your superannuation fund with your tax file number. The government then works out how much you are entitled to.
Low income super tax offset – up to $500 available
This is an offset which is automatically available to anyone who makes a concessional super contribution (either an employer or personal contribution) and earns less than $37,000 a year. A government contribution of 15% of your concessional contributions up to $500, meaning most low income earners will not pay tax on their superannuation contributions.
Spouse superannuation offset – $540
You can make a contribution to your spouse’s super fund and receive a rebate. The full amount will be paid where your spouse’s income is less than $13,800. It is scaled and no amount payable after $37,000. The spouse cannot have exceeded their non-concessional cap for the year, their balance must be less than $1.6 million and you cannot have claimed the amount as a tax deduction.
The amount is claimed in your income tax return.
Spouse contribution splitting
This involves transferring concessional contributions to your spouse after the end of the financial year. The amount which can be transferred each year is the after tax amount of the concessional contribution made. For example, if you have contributed $25,000 to your super fund in the 2017/18 financial year and claimed a deduction. In July 2018, you can transfer $21,250 (contribution less the 15% tax) to your spouse. This doesn’t necessarily provide you with an immediate tax benefit, but it does allow spouses to even up their balances, particularly where one partner has had time out of the workforce and their super balance isn’t increasing. You don’t have to transfer all the contributions made in a given financial year.
Downsizing contributions
This is a new measure, only taking effect from 1 July 2018. You must be over 65 and you must contribute the proceeds of the sale of your home which was owned by you for 10 years or more at the time of sale. It can only be done once. You must notify you fund that you are making such a contribution either before or at the time of making the contribution. More information is available at the Tax Office’s website.
A couple of things you need to remember:
The income thresholds included in this article are current for the 2018/19 financial year. They are changed often, so it pays to check!
- There are implications of going over your contribution caps including paying additional tax, so you need to monitor carefully.
- The magic of compounding returns – the earlier you start, the better.
- You need to consider your individual financial position and how superannuation fits with all your investment choices. Getting a tax deduction should not be the primary reason to make a super contribution.
If you need help working out what super tax deductions you can claim, I offer a FREE 30 minute initial consultation. You can easily book online here and I look forward to helping you sort your finances!