The June 30 tax filing deadline of is less than three months away and this is the time to start thinking of how to maximize on the opportunities you can leverage to maximize your superannuation contribution. There is still some good amount of time left before the end of the financial year so if you have not made plans this is the best time to begin thinking about these opportunities.
Previously, savers could only leverage two options if they wanted to voluntarily make additional superannuation contribution.
The first option involves making the non-concessional contributions with the money usually coming from personal savings. These non-concessional contributions are also not tax-deductible.
The second route that you can leverage to make extra voluntary superannuation contributions is by following the ‘salary-sacrifice’ route. As the name suggests, this involves making an arrangement with your employer in order to divert some portions of your normal salary into a superannuation fund. Because this is an extra contribution beyond the super guarantee by the employer, the amount put in is taxed like any other employer contribution and it is not treated as a salary in which case it would have attracted taxes at a rate pegged based on your personal income tax bracket.
These options are particularly advantageous for those taking home just over $40,000 since the personal income tax rates above this income bracket are usually higher than the super fund rates. Few could in the past make superannuation contributions for which they were eligible for a tax deduction. Those most likely to file claims were taxpayers running a business registered in their own name or those who are not employed at all. The traditional salary earner was largely excluded from this arrangement.
There have been changes, however, in the past few years that have redefined who can be eligible for these extra contributions even though many contributors may not be necessarily aware of the updates to the rules.
Under the current rules and regulations, virtually anyone is eligible for tax deductions for contributions to superannuation that are made from their own money. The Australian Taxation Office (ATO) has imposed a contribution limit of $25,000 per year. This limit also includes any contributions made by your employer such as the superannuation guarantee (SG).
As a result, it is imperative that the contributor runs the numbers to determine the actual amount they have contributed as well as the contributions made by their employer before they decide to chip in with extra contributions. It’s akin to the salary sacrifice contributions but the new terrain has unlocked new opportunities that contributors can leverage to maximize on their superannuation contributions.
Someone with a part-time job but receiving income from their investments may want to fully utilize the $25,000 limit since it is more tax-effective due to the concessional rates. However, the job might not be earning them enough to fully take advantage of the contributions via the salary-sacrifice route. In this case, the employer should at least pay the employee the award rate for their position and the salary-sacrifice contributions will not be factored in the sum. Some employers may be hesitant about allowing their staff to salary-sacrifice to the extent they wish to.
Apart from the instances where the employee is earning a low salary, another inconvenience with the salary-sacrifice method is that the arrangements have to be made in advance. Such an advance setup process may not necessarily work for someone who has just received an unexpected income like a bonus or where you have reached the end of the financial year with much more income than you expected. If the income appears late in the day and you decide to put it into a super, it would be too late for you to salary sacrifice.
Due to these challenges, tax payers should leverage the allowance that makes it possible for them to make super contributions out of pocket before the June 30 deadline and still claim a tax deduction. It will come in handy when you want to maximize on your superannuation contributions before the designated deadlines.
Some of the important factors to keep tabs on when trying to maximize on your super contributions before the June 30 deadline:-
- Keep note on the amount paperwork that will be required along with the strict time frames imposed for the paperwork. Personal contributions made to a super account are only tax-deductible if the contributor asks the fund to treat them as such and if the fund accedes to your request. This is in contrast to salary-sacrifice contributions which will be automatically tax-deductible.
- Not everyone over the age of 65 can make super contributions. Consult a professional accountant Melbourne professional to advise you on the extra rules that apply if you are above this age threshold.
- The contributions will also not be tax-effective or appropriate for everybody, Everyone has a unique financial situation and it pays to seek professional advice an accounting firm Melbourne has or have a talk with your fund before making a move.
However, many people will still go the salary-sacrifice route when it comes to making their regular super contributions. Most people simply find comfort in automating this process and making the contributions on a regular basis without lifting a finger. It requires less willpower compared to personal contributions and you won’t worry about forgetfulness or obscure rules that you may not be familiar with. However, the new rules in place now allow contributors to leverage the tax benefits of salary-sacrifice contributions while still taking advantage of the flexibility that is offered by non-concessional contributions.