Did you know that there are also some excellent tax benefits you can take advantage of right now – just by making your own voluntary superannuation contributions? When you retire, your superannuation is likely to become an important source of your income. That’s why it’s a good idea to top it up while you are working.
Generally, money invested in super is taxed at a lower rate than your personal income tax rate and we want you to be aware of opportunities to save tax with super contributions.
1. Catch up on Super Payments Contributions
From 1 July 2018, if you are a kind of person who has a total superannuation balance of less than $500,000, you now can make “carry-forward” concessional super contributions. With this, you can now access your unused concessional contributions caps on a rolling basis for five years while those amounts that have not been used after five years will expire.
2. How Low-income Earners are Taxed
If you’re a low-income earner earning up to $37,000 per year, the low-income superannuation tax offset will ensure that you don’t pay a higher tax rate on your super contributions than your income tax rate. The said offset will be paid directly to your super account and the payment will be equal to 15% of your concessional contributions for the year, capped at a maximum of $500.
Meanwhile, those high-income earners who have accumulated between $41,112 and $56,112 earnings during the 2022 financial year may also be eligible for super co-contributions from the government of 50 cents for each dollar, up to a maximum of $1,000 in non-concessional (after-tax) contributions.
3. How High-income Earners are Taxed
If you earn more than $250,000 a year (including super contributions), your concessional contributions are taxed at an additional 15%, known as Division 293 tax, bringing the total tax on these contributions to 30%. Only the concessional contributions which make your total income exceed $250,000 are subject to the additional tax.
Suppose your concessional contributions exceed the concessional contributions cap of $27,500 per year. In that case, the excess is included in your tax return and taxed at your marginal tax rate (less an allowance for the 15% already withheld by your super fund). You can choose to withdraw some of the excess contributions to pay the additional tax.