This blog will discuss the superannuation opportunities you need to know for different income levels and life stages.
As we approach the end of the 2023 financial year, assessing your superannuation and the tax benefit opportunities you may or may not know about is important.
In many cases, superannuation is a set-and-forget investment as your employer makes your superannuation guarantee contributions on your behalf. However, with a bit of knowledge and understanding of the superannuation system, you can increase your superannuation balance AND receive additional tax benefits in the year you contribute.
Many individuals are looking for ways to save on tax and tend to look at what they need to buy to reduce their tax; however, with the current tax and superannuation laws, contributing to superannuation is becoming a well know strategy to reduce an individual’s tax liability.
It is important to note the opportunities and benefits differ across income levels and life stages. Being armed with the knowledge and understanding of what tax opportunities are available at your particular life stage increases your and your family’s financial wellbeing.
Let’s start with the basics of understanding the types of contributions under the superannuation regime and the possible opportunity or strategy each may represent.
Mandatory contributions your employer makes to your superannuation fund on your behalf. The SGC rate is the percentage (%) rate of your salary that must be contributed to superannuation on your behalf by your employer. The maximum quarterly contribution for the upcoming 2023-2024 financial year is $62,270.
SGC increased rates
If your income is $37,000 or less, you will automatically receive a Low-Income Superannuation Tax Offset (LISTO) of 15% of your super concessional contribution up to $500. You must lodge your Income Tax Return, which is paid directly to your superannuation fund.
Non-concessional Personal Superannuation Contributions
These are personal contributions that you make and, in some form, have already been taxed. e.g. Contributing to super with wages already taxed under the income tax system. Non-concessional contributions will not be additionally taxed within the superfund.
Here is a good opportunity if you earn up to $42,016
Government Co-Contribution: If your income earning is up to $42,016 and you make a personal non-concessional contribution (after-tax) of up to $1,000 the government will match it by 50% during the 2022-23 financial year.
- What you need to do: Contribute to your personal superannuation fund before 30 June 2023 and ensure you lodge your income tax return with the ATO. The government will automatically pay the co-contribution to your super fund.
If your income is above the lower threshold of $42,016 and the upper threshold of $57,016 the government will pay the following co-contributions on your behalf as set out in the table below.
Salary Sacrificed Superannuation Contributions
Pre-tax contributions made under an agreement with your employer and taken from your salary or wage before you get paid. This has the effect of reducing your taxable salary and providing you with a tax benefit.
These contributions are usually taxed at a concessional (lower) rate of 15%, in contrast to your usual tax rate of 19%, 32.5%, 37% or even 45%.
You will not see this tax benefit in your yearly tax return; this benefit is represented in your weekly or monthly salary.
Concessional Personal Superannuation Contributions
You contribute to your superannuation account and claim a superannuation deduction in your income tax return. They have the effect of reducing your income tax liability, however, they do carry a superannuation tax liability of 15% within the superannuation fund.
So effectively, your income is either taxed under the income tax regime at your marginal tax rate or under the superannuation tax regime, not both.
This table represents the tax benefits of deductible superannuation contributions across the different income levels:
Here is a good opportunity if you have the required cashflow
By reviewing your current income tax threshold, you can see the opportunities at each income level in the table. Having the required cashflow would be a requirement; however, you may want to compare this to your mortgage interest rates, HECS repayment thresholds and other personal debt, whereby a tax benefit may yield a higher benefit.
Please note these benefits are time sensitive and will reduce if the new stage 3 tax cuts are not repealed in the 2024-2025 financial year.
Concessional Contributions Caps
Due to the tax benefits afforded to individuals making concessional contributions to their superannuation accounts, the ATO has applied a cap on the amount of concessional contributions you can make. The current cap is $27,500 per annum, and it includes the following types of contributions:
- Super Guarantee Charge (employer contributions)
- Salary Sacrificed Contributions (employee pre-tax contributions)
- Personal Concessional Superannuation Contributions
In 2023, if you earn $100,000 in salary and your employer contributes SGC of $10,500 (2023 SGC Rate of 10.5%), you also make a salary sacrifice contribution of $100 per week totalling $5,200. This leaves you with a concessional contributions balance of $11,800. You may choose to make an additional personal tax-deductible contribution of $11,800 in the 2023 financial year or leave it, which forms part of your carried forward unused concessional contributions balance.
Carried Forward Unused Concessional Contributions
This is the balance of your concessional contributions cap from the previous five years if you have yet to use the benefit of the full cap in those previous years.
You are eligible to access your cumulative unused cap balance if you have a superannuation balance of less than $500,000. The oldest amount of unused cap is used first when you contribute more than your annual cap.
Here is an example of an unused carried-forward super balance.
There are generational opportunities to consider here
This scheme was introduced to help first home buyers save for their deposit, allowing them to put their house savings into the superannuation environment of up to $15,000 per year, to a total of $50,000 and receive tax benefits.
Eligible participants could then withdraw 85% of their contributions, allowing for a 15% concessional contributions tax to purchase their first home.
Please get in touch with a YOUtax adviser to understand your eligibility and benefits
In some cases, individuals have received lump sums like an inheritance or monetary gifts. They have taken the opportunity to use their unused carried forward super caps balance to make personal contributions to superannuation and take advantage of the refundable tax benefits afforded to them in the financial year.
Take the time to review your superannuation balance and should your superannuation be nearing the eligibility cap of $500K you may first want to take the opportunity to use you carried forward superannuation caps.
Your superannuation contributions are normally taxed at 15% except for higher–income earners. Individuals with taxable income plus superannuation contributions totalling above $250K within a financial year is subject to 30% tax. This is called Division 293 Tax and its purpose is to keep superannuation tax benefits across income levels fairer or more equitable with respect to the different income tax rates.
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We recently had a webinar on this topic, don’t miss the opportunity to get more information.
Please note every person’s financial circumstances are different. Before applying any tax-deductible superannuation strategy, seek advice from your YOUtax agent to assess which superannuation laws support your personal circumstances.
Please note this is general information only and does not constitute individual tax advice or financial planning advice. Please reach out to your relevant professional.