The end of the financial year is fast approaching. It’s not too late to review your situation to take advantage of strategies that may be appropriate.
Let’s take a look at some of the strategies and incentives that you can consider regarding super.
Super co-contribution
Under this incentive, for every dollar you contribute, the Government will match it with a co-contribution of $0.50.
If you deposit $1,000 into your super as a personal (after-tax) contribution, you could receive a co-contribution of up to $500 in a financial year. To qualify for the $500, your total income must be under $35,454 for the 2015/16 financial year.
The amount of the co-contribution reduces accordingly with the more you earn. For every dollar of income you earn above $35,454, the $500 co-contribution reduces by 3.333 cents. Once your income reaches more than $50,454, no co-contribution is payable.
Also note this is only available to people under age 71.
The ATO uses information on an individual’s income tax return and contribution information from super funds to determine a person’s eligibility.
Spouse contribution
A spouse contribution allows you to make a non-concessional (after-tax) contribution into your spouse’s super fund. By doing so, you may be able to claim a tax offset of up to 18 per cent of the contribution, up to a maximum of $3,000.
This means you could get back $540 on the $3,000 you contribute into your spouse’s account, subject to a few conditions outlined below.
If your spouse earns $10,800 or less in assessable income, the maximum tax offset of $540 is available when you contribute up to $3,000 as a spouse contribution. Where the contribution is less than $3,000, you will receive a tax offset of 18 per cent of the amount, e.g. if you contribute $1,000, you will receive a tax offset of $180 ($1,000 x 18 per cent).
If your spouse earns more than $10,800 but less than $13,800, a partial tax offset is available. If your spouse earns more than $13,800, no tax offset applies.
Because it’s a tax offset, it means the higher earning spouse gets a direct saving against their income tax liability, as opposed to a reduction on their taxable income.
Salary sacrifice bonuses into superannuation
Simply put, salary sacrifice allows you to make contributions to your super using pre-tax dollars. This gives you the opportunity to boost your super balance and pocket some handy tax benefits at the same time.
To put this arrangement into place, you need to give instructions to your payroll department for a set amount from your salary to be paid into your super fund. These instructions can only apply to future earnings, not on salary you have already earned.
In the case of bonuses, this means the agreement needs to be in place before you are entitled to the payment of the bonus, without any further restriction.
It should also be noted that the offer of the facility to salary sacrifice is not a requirement for employers, which may limit your ability to salary sacrifice a bonus.
Concessional contributions, or those made with pre-tax money such as salary sacrifice, are currently limited to $30,000 per person per year. If you were 49 or over on 30 June 2015, this cap increases to $35,000. If the proposed Federal Budget 2016 is passed, these limits will be reducing in future years.
If you are already salary sacrificing into super throughout the year, you need to be careful that the bonus payment won’t push you above the limits as penalties can apply. Bear in mind that any super guarantee contributions made by your employer will also be included in this limit.
Self-employed – Making a personal concessional contribution
Self-employed people can boost their retirement savings, as well as reduce their taxable income, by making a personal contribution and claiming a tax deduction against their personal income.
Certain conditions do need to be met to qualify, including the following.
Are you self-employed?
You need to make sure you meet the tax office definition of being self-employed in order to be eligible to claim a tax deduction for any contributions.
If you are a sole-trader or in a partnership, you should generally meet this definition. However, if you run your business as a company and pay yourself a wage as an employee, you would not be classed as self-employed.
The 10 per cent income test rule
If you are self-employed but also do some work as an employee, it gets a little trickier. To be eligible to make a personal contribution into your super and claim a tax deduction you must receive less than 10 per cent of your total assessable income from your income as an employee. If you salary sacrifice or receive any fringe benefits from this employment arrangement, these amounts are added to the assessable income figure to determine if you qualify. So you can’t just salary sacrifice your wages to reduce your employment income to satisfy this 10 per cent rule.
Contribution limits
The current contribution caps in 2015/16 allow deductible contributions which are currently limited to $30,000 per person per year. For those aged 49 or over on 30 June 2015, this cap increases to $35,000.
Notifying your super fund
You need to tell your super fund that you wish to claim a tax deduction when the contribution is made. It is important to note that the Notice of Intent to Claim a Tax Deduction must be made in line with each super fund’s internal requirements and the notice must be acknowledged by the trustee before the deduction is able to be claimed.
Final word
Like many things in life, there is no one-size-fits-all answer. Some of the above strategies may or may not be suitable depending upon things such as your income level, family situation and age. Do your homework and get some professional advice if you’re unsure.