It’s that time of year again when everyone and their accountant starts suggesting the best ways to supersize your tax return.
As a financial adviser, my focus is on your long-term financial wellbeing rather than a quick cash grab – but that doesn’t mean I don’t have a couple of handy tax hacks of my own.
Did you know, for instance, that extra payments towards your retirement nest egg can actually help send more cash your way now?
Since July 1, 2017, anyone eligible to make personal superannuation contributions can claim these contributions as a tax deduction.
This means you can squirrel away more for your future while also benefiting now in the form of a lower taxable income.
This type of contribution was previously limited to self-employed workers who earned less than 10 per cent of their income from eligible employment, however this rule has been scrapped, opening up the deductions to even more workers.
But just who would benefit the most from this tax-reduction tactic?
Employees who do not have access to a salary sacrifice arrangement with their employer could certainly find the silver lining in making their own superannuation contributions, as could those whose variable income or expense levels make it impractical to commit to a regular salary sacrifice arrangement.
Over 65s can benefit if they meet the “work test” criteria, with the Federal Government allowing an exemption for super balances of less than $300,000 from July 2019.
It’s also a friendly tap on the shoulder for those procrastinators who have been contemplating the idea of making regular, or one-off, payments into their superannuation but never actually bothered to turn the idea into action.
So how does it work?
To take advantage of the tax break you need to make a contribution before June 30 in the year the deduction is to be claimed.
You’ll also have to fill in a ‘notice of intention to claim a deduction’ form, which is available through the Australian Tax Office or your superannuation provider.
This needs to be lodged with the trustee of your super fund before whichever of the following comes first – the day you lodge your tax return for the year in which you made the contributions, or the end of the income year after the contributions were made.
This notice needs to be acknowledged in writing by the trustee of the fund before you can claim the deduction on your tax return.
Important things to know
There’s a couple of points to remember before you give the green light to those extra contributions.
Where a tax deduction is being claimed for a personal contribution, that amount will count towards your $25,000 annual concessional contribution cap. This annual limit also includes any employer super contribution received during the financial year, so do your sums to ensure so you don’t exceed the cap.
Anyone with an income over $250,000 for the year might also have to pay an additional 15% contributions tax, so make sure you fully consider any impacts this may have before making additional contributions.
You’ll also need to be careful if you plan to roll over your super to another fund, start a superannuation pension or split contributions with your spouse, as you may lose the eligibility to claim a tax deduction if one of these events occurs before you claim the deduction.
If you’ve considered all of the above and are still interested in reaping the more immediate rewards of saving for your future, check with your super fund or financial adviser to see if there are any other fund-specific requirements.
This is particularly important where timing of the payment is concerned, to ensure that your contribution is received before June 30. There’s nothing worse than taking the time to get all dressed up, only to find the party is over by the time you arrive.
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