I’ve been speaking to many clients recently about tax planning, and one option that comes up often is extra superannuation contributions. For some, this is a great way to save tax, but in this post I go through the other benefits.
If you do decide to make extra superannuation contributions, remember to make them a few days before 30 June so that your fund has enough time for processing before the 30 June deadline. Also keep in mind the caps on contributions to avoid penalties.
The government can contribute up to $500 per year to your super fund.
If your taxable income is under the relevant thresholds, they will contribute $0.50 to your super fund for each $1 you contribute, up to a maximum of $500 co-contributed. This calculation excludes pre-tax contributions that you claim as a deduction in your tax return.
The ATO website has a helpful page on the super co-contribution.
Extra super from your business
If you run your business from a company, you may be able to take advantage of this option.
If your company contributes to your superannuation fund, it may be able to claim a deduction, and save 30% (the current company tax rate) of the contribution in tax.
In your super fund, contributions received are only taxed at 15%. The difference between the tax rates benefits your super account.
As an example, you could contribute $1,000 to your superannuation fund from your company.
Your company claims a deduction, saving $300 in tax. The net cost of the contribution is therefore $700.
Your super fund receives the $1,000 and then pays $150 tax on that contribution. The net increase in your super account is therefore $850.
Your super account has increased by $850, and your company only lost $700. That extra $150 is a 21.4% return on the company’s $700.
There are more technical details involved, which depend on your specific situation, but this can be a very appealing concept for people interested in growing their superannuation account.
As with anything tax, it is best to ask your tax accountant about your specific situation.