Your superannuation will always be a crucial component of your retirement income, alongside the Age Pension and personal savings. Your employer’s consistent contributions to your super play a vital role in paving the way for a secure retirement. However, enhancing your super through personal contributions is equally critical, and can help you save tax.
Salary sacrifice
Opting for a salary sacrifice can be a tax-efficient method to boost your super, provided your employer facilitates this choice. This approach involves forfeiting a portion of your salary to be contributed directly into your super account by your employer. These contributions are taxed at a lower rate (15%) in your super fund, compared to your marginal tax rate. It is important to note that this doesn’t affect the compulsory super guarantee contributions made by your employer. Salary sacrifice contributions form part of your concessional contributions and these are capped at $27,500 for the year ending 30.6.2024 and will be increasing to $30,000 in the next year.
Deductions for personal contributions
Making personal contributions to your super from your after-tax income classifies as non-concessional contributions, meaning they’re not taxed again in your super fund. If you claim these contributions as a tax deduction, they’re reclassified as concessional contributions and taxed at a reduced rate of 15%, thereby reducing your taxable income. Remember that the non-concessional contributions cap is $110,000 for the year ending 30.6.2024 and will be increasing to $120,000 in the next year.
Government co-contributions
For those earning a low or middle income, making personal after-tax contributions to your super may qualify you for a government co-contribution of up to $500. This bonus requires no action on your part to claim, provided you’re eligible and your super fund has your tax file number. This co-contribution isn’t taxed further, nor does it affect your taxable income.
Spouse contributions
Contributing to your lower-earning spouse’s super can also offer tax advantages. If your spouse earns less than $40,000 annually and you contribute at least $3,000 to their super, you could be eligible for a tax offset of up to $540. The maximum offset is available if your partner’s income is $37,000 or less, diminishing gradually to zero at $40,000. This strategy is particularly beneficial for boosting the super balance of a spouse who may have a lower income or those who have taken a break from work.
Get your super into shape before tax time
These four strategies not only enhance your super balance but do so in a manner that can provide tax efficiencies, helping you to secure a more financially stable retirement. As with any super strategy, the earlier you start the better.
Get in touch with our friendly team at APS Tax & Accounting to learn about the best way to minimise your tax by maximising your super.
Written by Richard Ferraro, Chief Financial Officer & Head of APS Tax.
Richard is a graduate of the Australian Institute of Company Directors (GAICD) and Fellow Certified Practising Accountant (FCPA) with 3 decades of experience in Financial Accounting, Tax Compliance and Advisory. Prior to the 11 years currently working at APS, Richard was a partner in a top 100 accounting firm, and a Taxation Manager for large corporations such as Nissan Australia, Bendigo and Adelaide Bank, NEC Australia and Australia Post.
Richard supports his clients across a wide range of services including tax compliance and advisory services to clients who are Companies, Trusts, Partnerships, Self Managed Super Funds, When Richard isn’t working he enjoys spending time with family and friends, watching the mighty Magpies, and anything to do with cars from F1 to supercars and collectables.