8 Healthy Supernnuation Tips
Will you have sufficient money in your super account to finance you throughout retirement? A lot of people will try to reach their ideal retirement without putting a little bit more to their superannuation. Money can be contributed into your superannuation account in many ways - by you, by your employer, and occasionally by the Federal Government.
In this post, we’ve discussed eight tips that can help you save more on your super and have sufficient funding for your retirement.
So keep reading...
1. The level of salary you make will usually determine whether you make before-tax or after-tax contributions.
If you contribute 15 cents or more in dollar tax, then superannuation begins to look good from a tax-saving perspective. You may as well make concessional contributions if you wish to offset an enormous capital gains tax bill.
Warning: Anybody considering making further superannuation contributions or anybody with high income, has to know the contributions caps. Exceeding the before-tax contributions cap, you can expect a penalty tax, or the chance to withdraw the extra contributions and taxed at the marginal tax rate.
Now is the perfect time to confirm the level of superannuation contributions you make, or made for you by your employer, so as to make certain that you do not go beyond the contributions cap by mistake.
Since July 1, 2012, if the adjustable taxable income you have is greater than $300,000 per year, then your before-tax contributions are hit with an additional 15% tax, meaning before-tax contributions of high wage-earners are hit with a 30% tax.
Annual limit for before-tax or concessional contributions
For the 2017-2018 financial year: The yearly concessional (before-tax) contributions cap is $25,000, and you have to know about this lower cap – compared with higher caps for 2016-2017 – when considering strategies for concessional contributions. This cap applies to everyone, meaning, there isn’t a special higher cap for much older Australians.
From the 2018-2019 financial year: Starting from July 1, 2018, if your Total Superannuation Balance – including balances from all pension and super accounts – is below $500,000, then you’ll have be given the opportunity to use the unused portions of your before-tax caps from the preceding years – up to five years’ worth – in the next financial or future years.
Note that if you pay beyond your concessional contributions caps, consequences will ensue, particularly financial ones.
What’s counted as a concessional (before-tax) contribution?
Concessional or before-tax contributions include the compulsory contributions of your employer known as the Super Guarantee, extra employer contributions, as well as any salary sacrificed contributions that you agree to be deducted from your before-tax income.
Also, concessional contributions include tax-deductible superannuation contributions, and since July 1, 2017, workers can pay tax-deductible super contributions.
For the 2017-2018 financial years, employers are obligated to pay the equivalent of 9.5% of your ordinary time earnings (OTE) as Super Guarantee contributions. The same rate also applied for the previous year.
How are concessional (before-tax) contributions treated tax-wise?
Concessional contributions are hit with a 15% contributions tax, meaning, paying such contributions is tax-effective only if you contribute more than ¢15 in the dollar tax on your income – besides zero tax, noting that, the lowest marginal tax rate is currently 19% including Medicare levy.
Your employer claims a tax deduction when paying Super Guarantee contributions on your behalf or when paying contributions under a salary sacrifice agreement for you. You can choose a salary sacrificing agreement, or pay tax-deductible super contributions to pay less income tax by reducing the amount of taxable personal income – but the concessional contributions are bound by at least 15% contributions tax in the super fund.
Some Australians, however, pay 30% concessional contributions tax. If your adjusted taxable income is higher than $250,000 annually, your concessional contributions – including the Super Guarantee contributions of your employer – is bound by an addition 15% tax known as “Division 293 tax,” taking the entire tax on such contributions to 30%. Since July 2012 up to July 2017, the Division 293 tax only applied to employees with more than $300,000 of adjusted taxable income.
2. Consider making after-tax (non-concessional) contributions
For the 2014-2015 year, the yearly after-tax contributions cap is $180,000. If you are under 65 years old, then you can propose non-concessional contributions of up to 2 years’ worth.
Note: If you’re a small-scale business owner, then you may be qualified for a non-concessional contribution limit of $1.355 million for the 2014-2015 year (indexed), which is a lifetime contribution limit, along with the after-tax contributions cap.
The Capital Gains Tax exemption allows personal contributions that are caused by the disposal of small business assets that qualify. If you think you could be eligible, then seek advice since the laws that this exemption applies to are complicated and challenging.
What are after-tax (non-concessional) contributions?
Non-concessional or after-tax super contributions are superannuation contributions that are bound by contributions cap, setting a yearly limit on the contributions you are only able to make. A non-concessional contribution is even called “un-deducted” contributions sometimes.
After-tax contributions come from your non-taxed income or after-tax income, which entails that the entire contribution goes to your super account and taxes are deducted once the contribution is in your fund. There’s no tax taken from an after-tax contribution since you did not obtain a tax deduction, nor did you acquire any form of tax concessions prior to paying such contributions.
Any income that a superannuation fund gets from such contributions is often taxed at lesser rates as compared to earnings on savings or investments outside the fund, while depending on the level of your taxable income.
Superannuation fund income is taxed at 15% in contrast to the marginal tax rate of 45% including Medicare levy (year 2017-2018) on each earnings beyond the superannuation environment. Should you contribute 15% tax, then super is likely not a tax-effective method.
What is the non-concessional contributions cap?
Non-concessional (after-tax) super contributions are bound by a contributions cap that sets a yearly limit over how much after-tax contributions that you can pay.
Since July 1, 2017, the yearly after-tax contributions cap was set to $100,000, while the three-year, submitted cap is set to $300,000. For 2016-2017, the annual non-concessional contributions cap has been $180,000, and the three-year, submitted cap was set to $540,000.
The yearly $100,000 concessional contributions cap are indexed in $10,000 increments, consistent with the classification of the nonconcessional contributions cap Note that if you have a $1.6 million Superannuation Balance or higher, you won’t be able to pay non-concessional contributions.
Your super fund should have your TFN or Tax File go on record before you can pay non-concessional contributions to a superannuation fund. If your super fund does not have your TFN, then you cannot pay after-tax contributions.
3. if you are 65 years old or over, verify that you qualify the work test prior to contributing
Anybody under 65 years old can make superannuation contributions irrespective of whether or not they’re working. If a person is 65 years old or over, then he/she should work 40 hours within a thirty-day period throughout the financial year, wherein they are planning to pay the contribution.
You can meet the requirement for a work test when the “employment” involves any undertaking where you get paid for your efforts, including cleaning, farming, babysitting, consulting, gardening, lawn mowing, and paid employment. You’ll have to confirm with the ATO whether your specific activities meet the work test rules.
The required minimum 40 hours during 30 days is to make sure that 40 hours is not spread over – three months for instance. This rule requires actual part-time work which should be at least 40 hours in a thirty-day period.
You can satisfy the work test by part-time or full-time work, but if it is part-time work, then the minimum requirement is 40 hours in a thirty-day period. Is there a maximum number of days or hours that can be worked in a financial year – 40 hours in thirty days are equivalent to 1.33 hours a day which isn’t practical?
The work test is just a minimum requirement, meaning, you can work daily if you want, or for six months, or for 40 hours during a thirty-day period, or for any variation given that you meet the minimum requirement – at least 40 hours if not more than thirty consecutive days in a financial year wherein you plan to pay super contributions.
There’s no maximum limit to the number of hours a person can work, yet only a minimum limit. You can work for more than thirty days or more than 40 hours, but you should, at least, meet the 40-hour (in a thirty-day period) requirement. For instance, this would be met by working 100 hours in such a period.
4. Check Eligibility for the Co-contribution
The co-contribution is a tax-exempt superannuation contribution when you pay an after-tax (non-concessional) contribution.
Eligibility for the superannuation co-contribution
You’ll be eligible for the superannuation co-contribution if you meet the following:
- you paid one or more eligible personal contributions towards your account during the financial year
- you meet two income test rules
- income threshold test
- 10% eligible income test
- you were aged below 71 at the end of a financial year
- you did not have a temporary VISA at any moment during the financial year – unless you’re a New Zealander or it was prescribed VISA
- you lodge your tax return within the financial year
From the 2017-18 financial years:
- you have a Total Superannuation Balance (TSB) lesser than the transfer balance cap on June 30 of the year before that relevant financial year
- you have not contributed an amount more than your non-concessional contributions cap for that relevant financial year.
You aren’t entitled to a superannuation co-contribution for any of your personal contributions that have been sanctioned as a tax deduction.
Income threshold test
To get the co-contribution, your total income test should be less than the income threshold for the financial year.
Your total income
For this test your total income is the sum of these:
- assessable income for a financial year
- RFBT (reportable fringe benefits total) for a financial year
- employer super contributions for a financial year
If you have a business, then you may have a high turnover yet still be qualified for the co-contribution because of your permissible business deductions.
The two co-contribution income thresholds:
- a higher threshold -- $51,813 for 2017–2018)
- a lower threshold -- $36,813 for 2017–2018)
If your total salary is less than (or equal to) the lower threshold, and you pay a $1,000 personal contributions to your account, you’ll get the maximum $500 co-contribution.
If you total salary sits between the two thresholds, then your maximum entitlement will lessen gradually as your income increases. You won’t get any co-contribution if your income is greater than (or equal to) the higher threshold.
If your co-contribution is below $20, then we’ll contribute the minimum amount of $20.
5. Salary sacrifice is worth it
Salary sacrifice is processes wherein you have your employer contribute a percentage of your before-tax income into your superannuation. Accumulating your super via salary sacrificing can help with tax savings as well as aid towards getting your retirement objectives sooner because salary sacrifice contributions have a 15% tax. You can establish salary sacrifice in the following steps:
- Speak to a payroll manager at your workplace and ask whether or not they include salary sacrifice as well as the process of paying salary sacrifice contributions to your super.
- Check if the salary sacrifice will affect other benefits you get, such as leave loading and overtime; it’s suggested that you seek professional counsel on whether or not salary sacrifice best suits your needs.
- Choose how much of your income you wish to sacrifice and inform your employer.
Note that salary sacrifice count towards your before tax (concessional) contributions cap. An additional tax could bind contributions exceeding the cap. Every salary sacrifice contribution is preserved in your superannuation. For more info, refer to this article in the Resource section – Salary Sacrifice and Superannuation – A Guide for Workers and Employers
By definition, income is an assessable income and reportable fringe benefits and reportable employer super contributions or RESC. In general, RESC is super contributions which you’ve requested your employer to pay as salary sacrifice (concessional) or extra employer contributions which weren’t stated under legislation, award, or enterprise agreement paid for you as a remuneration package.
Talk to your employer to find the possible RESC for the current financial year.
6. Voluntary contributions can yield Great Rewards
For loads of individuals, the compulsory contributions paid by your employer couldn’t be sufficient. You may want to boost the money you invest in superannuation by paying your own contributions. Voluntary after-tax (non-concessional) contributions are those paid to your superannuation fund from your net salary, on a one-off or regular basis.
By paying such a contribution, you could be qualified to exploit the co-contribution scheme of the government. Please go to the ATO website for more details on co-contribution. Also, voluntary contributions can be paid via a deduction on your payroll (on a non-concessional basis), through BPAY, or a direct withdrawal from a bank account.
Excess contribution caps concern contributions paid to your superannuation account. Superfunds cannot accept voluntary after-tax contributions if you haven’t provided your TFN (Tax File Number) or whatever one-off contributions higher than the cap. An additional tax binds any superannuation contributions higher than the cap.
The voluntary after-tax contributions count towards the after-tax contributions cap.
7. LISTO or Low Income Super Tax Offset
The Low Income Super Tax Offset or LISTO is a Government superannuation payment of up to $500 for every financial year to aid low wage earners to save for their retirement. Also, LISTO will refund efficiently the 15% tax that’s been paid on SG contributions up to $500. And the lowest entitlement is $10.
You’re qualified for the LISTO if you meet these following requirements:
- you have before-tax contributions for the year paid to a complying superannuation fund
- your adjusted taxable salary doesn’t go above $37,000 (if you’re obliged to lodge the tax return)
- you’re not a temporary resident visa holder (New Zealanders in Australia don’t have a temporary resident visa and, per se, are qualified for the payment)
- more than 10% of your total salary is derived from employment or business
If you believe you’re eligible, then all you have to do is lodge the tax return with the ATO. They will check it, determine your adjusted taxable salary, and directly pay the LISTO into your superannuation account on your behalf.
If you don’t have to lodge the tax return, then the ATO will determine whether you’re eligible and directly pay the LISTO into your superannuation account. Entitlements below $10 are going to be rounded up to exactly $10.
If you are self-employed and qualified, then you can get a full tax deduction on the amount that you pay into superannuation. Excess contributions cap concern contributions paid to your account. Any superannuation contributed over the cap is bound by an additional tax.
The cap amount varies according to whether the contributions are before-tax (concessional) or after-tax (non-concessional). For more details on claiming a tax deduction for superannuation contributions as well as to determine your qualifications, please go to – 7 Easy but Effective Tips to Increase Your Super
8. Employer contributions can boost Your Super
Under the present legislation, employers are required to contribute a portion of an employee’s ordinary time earnings into the employee’s superannuation account. This condition is called the SG or Superannuation Guarantee.
If you’re covered by an EBA (Enterprise Bargaining Agreement), or AWA (Australian Workplace Agreement), your employer is obliged to contribute the amount specified in the SG amount or the Agreement, whichever is bigger.
Employer contributions are categorized as concessional contributions, and they include:
- SG or Superannuation Guarantee contributions
- Award contributions
- Voluntary employer contributions
The Superannuation Guarantee Act entails employers to give a minimum level of super for their workers who make no less than $450 per calendar month and who are over 18 years old, or if under 18, are working over 30 hours a week.
With regard to:
- after-tax or non-concessional contributions
- self-employed contributions
- salary sacrifice contributions
No work test or eligibility requirements apply to contribute up to 65 years old. Between ages 65 and 74, you should be gainfully working for no less than 40 hours within at least thirty consecutive days in a financial year to contribute such an amount. Such contributions can’t be paid on or after reaching 75 years old. Spouse contributions can’t be paid if the spouse receiving the benefit is over 70 years old despite whether the spouse qualifies the work test or not.
From July 1, 2013, employers are required to pay SG for qualified employees over 70 years old. Employers can get tax deductions for such contributions. The work test mentioned above doesn’t apply for employer contributions despite your age.
Caps relate to contributions paid to your account. Any superannuation contribution above the cap amount is bound by additional tax. Contributions made by the employer are counted towards the before-tax (concessional) contributions cap.
If necessary, consider all the tips that are mentioned in this post and apply the knowledge you have learned from them. And just to make sure you are making the right decision, think about speaking to an independent adviser for advice on this matter.
If you are making major monetary decisions, mainly decisions with significant tax implications, consider looking for an independent tax service from accountants, if you are planning to engage in the main financial plans involving investments, maybe seek a financial adviser.
And if you do propose to hire a financial adviser, make certain the one you pick knows the superannuation rules and demands a charge for advice. Independent advisers are hard to locate, not impossible, however.
Disclaimer: All information on this website is of a general nature only. We have not taken into account your financial situation, needs or objectives. You need to make up your own mind and ascertain yourself if it is right for you. We recommend you read the product disclosure statement(s) and the financial services guide before making any financial decision.