Episode 38 – Smart Superannuation Strategies to Boost Your Super!

 
 
After getting over the hump of EOFY, it is a good time to plan out your superannuation strategies for the coming financial year. There are many different ways that you can contribute to super so it’s important to get your head across all the different ways and choose which option will benefit you the most. 
 
 
 
Why is super so good to have your money in and who is it best for?
  • For most working people super is a much better option to invest in from a tax perspective due to earnings being taxed at 15% in accumulation phase which is a lot less than most people who are working full time. When you are in pension phase it switches to 0% tax and it’s unlikely that you’re going to find a better tax environment than that. These lower tax rates mean that you get to keep more of those earnings which will then continue to compound year on year meaning a much better final result. 
  • May not be better for those on a zero MTR. 
 
Broken down into 2 main categories concessional and non-concessional. What exactly does this mean?
  • The main difference between concessional and non-concessional contributions is how they are taxed. As the name suggests concessional are where someone has been concessionally taxed on the contribution, meaning that they haven’t been taxed at their marginal tax rate. A non-concessional contribution is where there is no concessional tax treatment usually meaning the contribution has come from after tax monies.
  • This means that someone who is working and on a high marginal tax rate may look to use their concessional contributions to get money into super however the cap is lower than the non-concessional cap and therefore people who are getting closer towards retirement may look to use non-concessional contributions to get as much money into super as possible. 
  • Another difference between the two that’s important to note is the difference in caps or limits on each. If you claim personal super contributions as a tax deduction, they count towards your concessional contribution cap, which is $25,000 in the 2018/19 financial year. It’s important you don’t exceed the cap, as penalties may apply. All employer contributions (including superannuation guarantee and salary sacrifice) and certain other amounts are also counted towards this cap. The annual non-concessional cap is $100,000 however you can use the bring forward rule meaning you bring forward the next three years of contributions to give you a maximum of $300,000. 
 
 
 
What are some of the opportunities: 
 
 
Concessional
  • Compulsory contributions – also known as employer super contributions or superannuation guarantee which are contributions usually made by an employer on your behalf. 
  • Salary sacrifice – these are voluntary contributions your employer pays out of your before-tax income, if you’ve chosen for them to do so. 
  • Personal deductible – These are voluntary contributions as well that you can make using after-tax dollars, then claim these as a tax deduction later. This type of contribution is more often made by self-employed people. 
  • Catch up contributions – The 2019/20 FY is the first year you can use catch up concessional contributions. If you have a total superannuation balance of less than $500,000 you can access your unused concessional contributions cap space on a rolling five years basis. 
  • CGT small business concessions – This exists to allow small business owners to make large contributions into superannuation once business assets have been sold. 
  • Super splitting – This is where you may choose to split your concessional contributions with a spouse. This can be useful if one spouse is closer to satisfying a condition a release and therefore you may be able to gain access to the money quicker or if the spouse is younger then it may mean the person can qualify for a higher age pension under the means test. 
 
 
Non-concessional
  • Government co-contribution – This is for middle, low or no income earners. There are two co-contribution income thresholds: a lower threshold ($38,564 for 2019-20) and a higher threshold ($53,564 for 2019-20). If your total income is equal to or less than the lower threshold and you make personal contributions of $1,000 to your super account, you will receive the maximum co-contribution of $500. If your total income is between the two thresholds, your maximum entitlement will reduce progressively as your income rises. You will not receive any co-contribution if your income is equal to or greater than the higher threshold.
  • Spouse contributionsUnder the current 2019/2020 tax rules, you may be able to claim an 18% tax offset on super contributions up to $3,000 that you make on behalf of your non-working or low-income-earning partner. You can contribute more than $3,000, but you won’t receive the spouse contribution tax offset on anything above $3,000. If your spouse receives $37,000 or less in the total of assessable income, fringe benefits and employer super contributions, then you can access the maximum tax offset of $540, provided an after-tax contribution of at least $3,000 is made. The tax offset is then progressively reduced until the tax offset reaches zero for spouses who earn $40,000 or more in the total of assessable income, fringe benefits and employer super contributions in a year.
 
 
Other types of contributions:
  • Downsizer contribution – if you’re 65 years or older and meet the eligibility criteria then you can contribute money from the sale of your home up to $300,000 and that can mean a total of $600,000 if you’re in a couple. You need to make sure your home was owned by you or your spouse for ten years or more prior to the sale and that it is a main residence. This can be a good way for people to downsize into something smaller or more cost effective and put money into super or even if you are purchasing a house in a similar price range but have been unable to get money into super in other ways due to not meeting eligibility criteria then the downsizer contribution can be a good way to get the money into super. 
 
 
New rule for this FY: Recently retired exemption
 
This rule has been brought in to help recently retired individuals who would have previously not been able to contribute to super as they don’t meet the work test. Under the old rules, people aged 65 to 74 had to meet the work test to be eligible to make a contribution. Under the new rules people can contribute if they met the work test in the previous financial year, their total super balance at the end of the previous financial year is less than $300,000 and they have not made use of the work test exemption in a previous financial year. 
 
 
 

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