- Analysis
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- Superannuation
The little-known tax breaks that could boost your super
By John Collett
The new financial year is almost upon us: it might be time to look into the often-overlooked tax breaks you could get by contributing extra to your superannuation.
Tax breaks on retirement savings do not attract nearly the same attention as tax breaks on the family home, leaving many – especially lower- and middle-income earners – missing out on the potential savings they could be enjoying by topping up their super.
It may be time to look into the often-overlooked tax breaks you could get by contributing extra to your superannuation.
Many people, particularly those on lower incomes, are understandably focused on keeping the wolf from the door, but for those who do have spare financial capacity the tax breaks are significant.
Brooke Logan, advice technical and strategy lead at UniSuper, says making these “little tweaks” to your financial plan can produce large benefits for you and your family in retirement.
One of the most powerful is the super co-contribution scheme, under which the federal government pays 50 cents for each after-tax dollar contributed to super, up to a total contribution of $1000, for those with incomes up to $43,445 in the 2023-24 year.
The benefit progressively reduces and ceases once income reaches $58,445. A return of 50 per cent is the best return going, but the vast majority of those who qualify are not reaping the benefits.
Figures from industry fund Aware Super illustrates the point. The fund estimates about 300,000 of its more than 1.1 million members qualify for the co-contribution. However, of those, only 4 per cent have made after-tax contributions this financial year.
There is another, little-known, way to boost super where you can make a contribution to your spouse’s super and receive a tax offset.
You can make an after-tax contribution of up to $3000 to your spouse’s super fund and if your spouse, whether married or de facto, earns $37,000 or less during the financial year, you will receive a tax offset of up to $540.
The value of the tax benefit reduces if the spouse’s income is more than $37,000 and ceases at $40,000. The income thresholds are the same for the new financial year as for the current financial year.
The benefits of these strategies only come at the end of the financial year, after the processing of tax returns, with the tax offset or co-contribution automatically calculated by the ATO. You may only want to make the contributions towards the end of the next financial year.
Peter Hogg, head of advice experiences and enhancements at Aware Super, reminds those who are near the cap on concessional contributions to be mindful of the increase in the super guarantee from July 1.
The guarantee, which counts towards the $27,500 concessional contribution cap, will rise from 10.5 per cent to 11 per cent of wages from the start of the new financial year.
If you make contributions that exceed caps, you may have to pay extra tax.
Those with super balances of less than $500,000 can access the unused portion of the caps from up to the previous five financial years. There are many more rules governing contributions to super than can be covered here. If in doubt, talk to your super fund or a professional adviser.
- Advice given in this article is general in nature and is not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their own personal circumstances before making any financial decisions.
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