As the financial year draws to a close, a reminder of the tax concessions available in the superannuation environment follows.
1. Salary Sacrificing into Superannuation
Instead of receiving salary or wages as a normal cash payment,
you can instruct your employer to direct part of your pre-tax wage
into superannuation instead. This is referred to as a salary
sacrifice arrangement. This arrangement is beneficial if you have
surplus cashflow and you earn over $37,000 per annum (this is the
level where the individual tax threshold increases from 16.5 cents
in the dollar to 31.51 cents).
By salary sacrificing into super, your super fund deducts 15% tax
on any contribution. In contrast, wages are normally taxed at your
marginal tax rate, which may be as high as 46.5%. The potential
benefit is limited somewhat by concessional contribution caps,
which are as follows:
It is important to note that the compulsory 9% superannuation
contributed by your employer counts towards this limit.
Example
An employee earns $100,000 per annum. The benefit of salary
sacrificing into super can be calculated as follows:
Note: Please be aware that salary sacrifice arrangements need to
be prospective. For the 2011 FY, this would be income earned in
June.
2. Tax Deductible Super Contributions – Self employed
or non working individuals.
You may be eligible for a tax deduction in your personal income
tax return by making a super contribution up to the following
limits:
To be eligible for this tax deduction you must satisfy the
following conditions:
- less than 10% of your assessable income plus reportable fringe benefits (including any salary sacrifice contributions) for the income year must have come from being an employee
- if under age 18 on the last day of the financial year, you must have derived income from the carrying on of a business from employment
- if age 65 or over you must be eligible to contribute and you must be under age 75 or pay the contribution by the 28th day after the end of the month you turned 75.
- you must not be entitled to a Government co-contribution payment
In summary, this deduction is potentially available to the self employed, the unemployed, non working spouses and retirees (who still satisfy the contribution rules) under age 75.
Example 1
Joy, age 45, is a non working spouse who receives taxable trust
distributions from her husband's business of $55,000 per annum.
Joy could make a concessional contribution to super of up to
$25,000. This would reduce her taxable income to only
$30,000.
Example 2
Jeff, age 61, is retired and lives off the rental income derived
from his investment properties of about $70,000 per annum. Jeff
would be eligible to make a concessional contribution to super of
up to $50,000, which would reduce his taxable income to
$20,000.
3. Superannuation Co-Contribution
Overview
If your total income for tax purposes is $31,920 or less a year,
the Government will match your non concessional super contributions
by contributing $1 extra for each $1 you contribute up to a maximum
co-contribution of $1,000 a year. When your income is more than
$31,920 but less than $61,920 a year, the Super Co-contribution
entitlement is reduced by 3.3333c for every dollar of annual income
over $31,920. For example, if your income is $40,000 a year and you
make non concessional super contributions of $1,000 during that
year, you will be entitled to a Super Co-contribution of
$731.
Eligibility
You will be eligible for the co-contribution in a year of income if:
- you make a personal non-concessional (after-tax) superannuation contribution to a complying superannuation fund.
- have total income (sum of an individual's assessable income, reportable fringe benefits, reportable employer super contributions plus net business income) of less than $61,920.
- must earn at least 10% of total assessable income, reportable fringe benefits (plus reportable employer super contributions) from carrying on a business, salary/wages from eligible employment (activities which qualify the individual as an employee for SG purposes) or a combination of both.
- you do not hold an eligible temporary resident visa at any time during the year.
- you lodge an income tax return for the year of income, and
- you are less than 71 years old at the end of the year of income.
When will the Super Co-contribution be paid?
Your Super Co-contribution will be calculated after you have lodged your tax return and the Australian Taxation Office (ATO) have received contribution information from your superannuation fund. The ATO will send you a letter with details about your Super Co-contribution amount after it has been deposited into your nominated superannuation account.
Example
Jennifer's income for FY 10/11 is $40,000. She makes a non-concessional super contribution of $1,000 during that year. She would be entitled to a Super Co-contribution of $731.
4. Superannuation Spouse Contribution
Taxpayers can claim an 18% tax offset on non-concessional superannuation contributions of up to $3,000 made on behalf of their low income or non-working spouse. The maximum rebate allowed is $540. Where the receiving spouse's total assessable income and reportable fringe benefits exceeds $10,800, the eligible spouse contributions limit of $3,000 is reduced by $1 for each $1 of assessable income and reportable fringe benefit in excess of $10,800. The tax offset is reduced to zero when your receiving spouse's total assessable income and reportable fringe benefit exceeds $13,799.
Example
Jeff earns $150,000 per annum. He contributes $10,000 to his
wife's super as a spouse contribution. His wife has a taxable
income of $12,000. Jeff would be entitled to claim a tax offset of
$324 in his personal tax return, calculated as follows:
Step 1 - Amount of contribution entitled to offset: $3,000
– ($12,000-$10,800) = $1,800
Step 2 - Calculate tax offset: $1,800 x 18% = $324.
5. Post Tax Superannuation Contribution Thresholds
Overview
Non-concessional superannuation contributions are after tax
contributions made that are not included in the assessable income
of the superannuation fund.
Maximum Limits
The maximum non-concessional contribution an individual can make is either:
- $150,000 per financial year; or
- For an individual under age 65, a bring forward option is available where an individual can make more than $150,000 contribution in a year, but if so, total contributions cannot exceed $450,000 over a 3 year period. This is known as the bring forward rule which is automatically triggered when an individual makes a contribution in excess of $150,000 in a financial year. The bring forward rule does not apply to individuals aged 65 or over.
Example
Craig has $600,000 sitting in bank accounts outside of
superannuation where the interest is being taxed at his 46.5%
marginal tax rate. He doesn't need access to the interest
income and so decides he wants to transfer the funds into
superannuation to reduce tax on earnings to only 15%. He wants
advice on how to achieve this as quickly as is possible. This could
be achieved as follows:
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