Super contributions - 30 June is just around the corner
Super is real money, and it’s your money. By the time you retire it will likely be one of your biggest assets, so putting some thought into making contributions today may help you achieve the lifestyle you want in retirement.
Making additional contributions could help give your super balance a boost. Take Alex for example. She’s 40 years old and decides to contribute an extra $100 each month to her super, as a before-tax contribution. If she keeps it up, by the time Alex retires at age 67, it could mean an extra $38,496 in her super^.
And there are potential tax benefits as well:
Reduce your taxable income – if you make before-tax contributions from your salary or claim a tax deduction in your tax return for your personal super contributions, you'll lower your taxable income, which could mean less tax.
Pay less tax on investment earnings – earnings on your super are taxed at a maximum of 15%, whereas earnings on personal investments outside of super are taxed at your personal (marginal) income tax rate. This can be as high as 45%.
^ Example is for illustrative purposes only and has not taken your individual circumstances into account. It assumes a 5.0% pa investment return until retirement at age 67. The example includes a super account administration fee of 0.8% pa, employer contribution rate of 9.5% pa (which increases over time in line with the law), a wage inflation rate of 3.5% pa and a discount for price inflation of 2.5% pa. See below for full assumptions and important information relating to this example.
Before-tax contributions cap - $25,000
There is a cap per financial year ($25,000 for 2017-2018) on the amount of before-tax contributions you can make. This includes salary sacrifice and compulsory employer contributions, as well as personal contributions which you claim as a tax deduction in your tax return.
After-tax contributions cap - $100,000
There’s a cap per financial year ($100,000 for 2017-2018) on the amount of after-tax contributions you can make. If you’re under age 65, you can also ‘bring forward’ up to 3 years’ worth of after-tax contributions, which means you could contribute up to $300,000 in a financial year. However, if your total superannuation balance at 30 June of the previous year was $1.6 million or more, your after-tax contribution limit will be reduced to zero.
New legislative changes
Increased eligibility to claim a tax deduction on personal contributions
On 1 July 2017, the government removed the 10% maximum earnings condition on claiming a tax deduction for personal super contributions. Previously, this meant that if someone had been employed during a financial year, only those who earned less than 10% of their income as an employee could claim a tax deduction.
Now most people under age 75, can claim a tax deduction on personal super contributions. If you’re aged 65 - 75, you’ll need to satisfy a work test before you’re able to make a personal super contribution. Other conditions still apply, so be sure to check with the ATO.
If you’re eligible and planning to claim a tax deduction on person super contributions, you’ll need to send a notice of intent to claim form to your super fund within strict timeframes.
While there can be a tax benefit to claiming a personal tax-deduction for your contributions to super, it’s worth remembering that the amount of contribution you claim as a tax deduction will generally be subject to 15% tax on entry to the fund. You’re then generally not able to access the money you put into your super until your retirement, and the contribution caps apply.
The First Home Super Saver Scheme
Did you know that you could now use your super account as a tax-effective way to help save a deposit for your first home?
Under the First Home Super Saver Scheme (FHSSS), from 1 July 2017, you could make voluntary contributions up to $15,000 per financial year into your super account, up to $30,000 in total. You can apply to withdraw these amounts, plus the earnings, from 1 July 2018 to help you with a deposit on your first home#.
Due to the favourable tax treatment generally available through super, FHSSS is designed to help you save towards your deposit faster˅. Remember, any contributions made under the FHSSS will count towards the contributions caps for that financial year.
The tax offset on spouse contributions has been made available to more people
On 1 July 2017 the government increased the income threshold for the tax benefits available when making a spouse contribution.
If your spouse has total income of $37,000 or less, and you make after-tax contributions to their super, you could receive a tax offset on spouse contributions of up to $540. The tax offset amount decreases as your spouse’s income increases and completely phases out when your spouse’s income reaches $40,000.
It’s important to remember that the amount you contribute to your spouse’s super account, will count towards their after-tax contributions cap. If they exceed the contributions cap, you won’t be eligible for the tax offset when your spouse receives a contribution. Eligibility criteria and rules apply.
Things to consider
Any contributions into super are generally only accessible when you reach preservation age and retire. There are exceptions, such as under the First Home Super Saver Scheme.
If you exceed the contribution cap limits, additional tax and penalties may apply.
Before-tax super contributions will typically be taxed at 15% upon entry to your super fund*.
The value of your investment in super can go up and down. Before making extra contributions, make sure you understand and are comfortable with any risks tied to your investment option. Find more information about super investment options.
There are different ways to add to super. Find more information on the ways you can add to super
You should consider your own circumstances and decide what’s right for you.
How can I contribute?
There are different ways to help top-up your super. Please ensure you consider you circumstances before deciding what’s right for you.
You can generally make a personal contribution via BPAY® or cheque.
Speak to your employer about making before-tax contributions from your salary, also known as salary sacrifice.
You may want to consider making a spouse contribution to your partner’s super, if they are eligible to receive after-tax contributions.
Please contact us on 02 4365 4466 if you would like to discuss.
Source: AMP May 2018
What you need to know
^ This example is for illustrative purposes only and has not taken your individual circumstances into account. It is based on a 40 year old person contributing an additional $100 each month (before-tax) into their super account, assuming 5.0% pa investment return until retirement at age 67. The example includes a super account administration fee of 0.8% pa, employer contribution rate of 9.5% pa (which increases over time in line with the law), a wage inflation rate of 3.5% pa and a discount for price inflation of 2.5% pa. The example is displayed in today’s dollars. The example excludes other fees and charges, any applicable insurance premiums and fluctuations of your super investment returns. It does not consider your personal circumstances including your current lifestyle, financial commitments, needs and objectives, or whether you have made any contributions in excess of your concessional contribution caps. The results are for illustration and information purposes only. The example is based on the same assumptions and limitations as the Little Extra Calculator. The example is correct as at 26 April 2018 and should not be relied upon as a true representation of any actual superannuation contributions, retirement benefit or taxation.
# Eligibility for the FHSSS is assessed on an individual basis. Please refer to the ATO for full details and eligibility on the First Home Super Saver Scheme.
˅ Compared with saving through a standard deposit account - www.homeownership.gov.au/first-home-buyer.html
* If you earn $250,000 or above pa, inclusive of super you will also be subject to division 293 tax, which could mean an additional 15% tax on some or all of your before-tax contributions.
Any advice on this page is general in nature and is provided by AMP Life Limited ABN 84 079 300 379, AFS Licence No. 233671 (AMP Life). The advice does not take into account your personal objectives, financial situation or needs. Therefore, before acting on this advice you should consider the appropriateness of this advice having regard to those matters and consider any relevant product disclosure statement before making any decision. Although the information is from sources considered reliable, AMP does not guarantee that it is accurate or complete. You should not rely upon it and should seek qualified advice before making any investment decision. Except where liability under any statute cannot be excluded, AMP does not accept any liability (whether under contract, tort or otherwise) for any resulting loss or damage of the reader or any other person.
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Information on this page is current as at May 2018 and is subject to change.