The end of the financial year is now very close. It’s time to action strategies that will save tax and improve personal finances. Superannuation related strategies require that contributions be in the fund on June 30.
Anyone under age 65, whether working or not, can now make super contributions and claim a tax deduction for them. This year’s limit is $27,500 including employer super guarantee amounts.
For example if someone has a salary of $80,000 their employer super payments will be $8,400 so they could make voluntary tax-deductible contributions of $19,100. As well as building their super that should provide a tax refund of more than $6,500 on lodging their tax return.
People whose super balances were under $500,000 last June 30 can make “catch-up contributions”. If they didn’t contribute the full amount allowed in the previous four financial years, they can catch up the shortfall amounts this year.
This could entitle them to a very large tax deduction if they needed it, maybe $50,000 or more. Business owners who have had a very good year may be able to benefit from such a deduction.
People who have sold a property or shares for a good profit and are facing a capital gains tax bill could use such a deduction. Taxable gains are added to normal income, so a large super tax deduction can offset the capital gains tax.
When selling property the date the contract was signed is the date the capital gains tax liability is triggered, not the date of settlement. So super contributions to offset capital gains tax must be made in that same financial year.
Super contributions can also be made without claiming a tax deduction. These too can be very useful. If a person contributes $3,000 into the super account of a spouse who earns less than $37,000 annually, they will receive a $540 tax rebate.
If a person who earns less than $42,000 per annum makes a $1,000 non-deductible contribution for themselves the Government will add a $500 co-contribution to it. Making these small contributions each year for a long time will add up.
The rule change allowing anyone under age 75 to make non- deductible contributions also offers the opportunity for many retirees to reduce the tax their beneficiaries will pay on their super balances after their passing.
Withdrawing money from super and recontributing it can greatly reduce that future tax liability. However this must be planned carefully to ensure limits are not breached.
Contributions can be made via a financial adviser or direct to the fund online. If a deduction is being claimed it is essential to also lodge the relevant ATO claim form.