Andrew Zbik
Over the last 10 years, the ability of Australians to contribute more to superannuation has reduced. Superannuation is a great system which has led to Australia having the fourth largest pool of retirement savings in the world.
This year there is a new strategy up your sleeve to help you contribute a little extra to your superannuation. One of the superannuation changes that came into effect after the 1st July 2017 now allows people to contribute any assessable income to their superannuation fund.
Previously, you could only contribute income earned from wages or personal exertion. Plus, your ability to contribute personal money to superannuation was tied to what percentage of your income came from wages. This no longer exists.
For example: If you are working and have investments such as shares or an investment property, you can effectively contribute the income earned from your investments and pay the concessional rate of superannuation contribution tax that applies to you. Previously, it may not have been so easy to do this.
If you earn $80,000 from your job, your employer would make a superannuation guarantee contribution of $7,600.
Let’s say your investment property and share portfolio generate an income from rent and dividends of $30,000 this financial year. You may be able to make a personal deductible contribution of up to $17,400 to your superannuation fund and claim a tax deduction on this income. It is important to remember, the total balance of any superannuation guarantee contributions paid by your employer and any personal deductible contributions cannot exceed the concessional contribution cap of $25,000.
By making the personal contribution of $17,400 – it means instead of paying a marginal tax rate of between 32.50% to 37% you are now only paying superannuation contributions tax of 15% on this assessable income. This may save up to $3,828 in income tax. Before 1st July 2017, this would not have been possible.
This strategy will be particularly helpful too for people nearing retirement who may be still working part-time and have found they have saved more money than expected towards the end of the financial year.
The great thing about this new strategy is that if you have surplus cash towards the end of the financial year you can decide to make the personal contribution prior to the 30th of June. It is important that you make sure the personal contribution has been received by your superannuation fund before the 30th June and ensure that by making the contribution you don’t exceed the $25,000 concessional contributions cap. This strategy is also attractive in that you no longer are required to enter into a salary sacrifice arrangement with your employer to top up your concessional contributions.
To be able to claim a tax deduction on this personal contribution, you need to complete and lodge with your fund a “Notice of intent to claim or vary a deduction for personal super contributions”
You also need to have an acknowledgment from your superannuation fund that they know you intend to claim a tax deduction on the personal contribution you have made (otherwise the contribution is considered a non-concessional contribution).
It is always best to seek advice to ensure this strategy is appropriate for your needs.
By Andrew Zbik, Senior Financial Planner