Boost your wealth before the rules change, writes Nicole Pedersen-McKinnon.
The race is on to the end of the financial year - and this year it's more important than ever you compete. The prizemoney, particularly when it comes to your retirement kitty, is huge.
Your super has been battered on two fronts: from merciless investment markets and mercenary governments. The former have left our balances seriously depleted the latter, thanks to clawback after clawback, has seriously curtailed our ability to rebuild them.
But all is not lost. Do a few simple things before the clock ticks over to midnight on Friday, June 29, and you'll save and make the most money possible.
STRATEGY ONE
This involves the government's shock decision to defer, for two years, a permanent increase in the amount fiftysomethings with less than $500,000 in super can contribute pre-tax. The word "defer" masks the fact this beleaguered group - who have probably only recently been able to focus on retirement saving and for whom the credit crack-up came at the worst time - is about to see allowable contributions unexpectedly halve from $50,000 to $25,000.
Do all that you can to mop up the double limit this year. Talk to your employer immediately about sacrificing your last pay cheque for the year or any potential bonus. This can reduce your tax by up to 31.5 per cent (with Medicare). Remember when crunching the numbers, though, that these so-called concessional contributions include what your employer pays in on your behalf, and there are penalties for breaching the cap.
STRATEGY TWO
Make a co-contribution. Those earning less than $61,920 a year who pay in $1000 after tax will qualify for bonus money from the government. It will match that contribution for people on less than $31,920, with the amount phasing down by 3.3? for each dollar earned over that salary. This is yet another measure set to be scaled back next year with the maximum co-contribution falling to $500, and the maximum salary to $46,920.
STRATEGY THREE
Look after your spouse. If they earn less than $13,800, you can pay in an after-tax $3000 to their super to receive a tax offset of $540. Many are overlooking this opportunity with only 16,000 claims in 2009-10, the Association of Superannuation Funds of Australia says. Find more about this and the strategy above at ato.gov.au.
STRATEGY FOUR
Find lost money. There is $730 million lying unclaimed in 2.3 million super accounts. If you've had multiple jobs or addresses, the chances are some of it could be yours. Search on SuperSeeker on the ATO's website - you'll need your tax file number - to find out.
THE YEAR AHEAD
After June 30 you need to review the situation, too.
Check your contributions to make sure you won't go above the stringent new concessional contribution limit of $25,000, or risk a big tax penalty. Don't forget this figure includes employer contributions - you may even have more than one employer paying in on your behalf - and your own salary sacrifice payments. It will remain the cap until at least July 2014, when the government says a higher limit will be reinstated for fiftysomethings with less than $500,000. We shall see.
This new limit means those using a transition-to-retirement strategy, where you draw a pension to sacrifice your salary into super and significantly lower your tax, will need review. The lower cap may wipe out some or all of your advantage.
Those further from retirement can no longer leave super until the last minute. As I revealed in a recent column, you need to start sheltering the full $25,000 in super from age 35 to reach the magic million-dollar mark. Otherwise, you can consider after-tax contributions, which will obviously cost you more, or tax-effective alternatives to super (such as negative gearing, bearing in mind it's a much higher risk).
Be aware the introduction of the low income super contribution means an automatic tax refund into your super fund of up to $500 if you earn less than $37,000.
Lucky you if this applies but the contributions tax for those with income above $300,000 (including salary, adjusted fringe benefits, tax-free pensions and total net investment loss) will double from 15 per cent to 30 per cent. This is still below the 45 per cent marginal tax rate.
Meanwhile, you have just two weeks to take advantage of this year's giveaways and boost your ultimate super stash.
Frequently Asked Questions about this Article…
What is the end-of-financial-year deadline to boost my super this year?
According to the article, you need to act before the clock ticks over to midnight on Friday, June 29. That’s the deadline to make last-minute salary sacrifice, bonus or personal contributions that affect this financial year’s super limits.
How can salary sacrifice into super reduce my tax before the EOFY?
Salary sacrificing your last pay or any bonus into super can reduce your taxable income and lower tax by up to about 31.5% (including Medicare) as described in the article. Remember employer contributions count toward your concessional cap, so check your total contributions first to avoid penalties for breaching the cap.
Who is affected by the temporary cut to the concessional contribution cap?
The article explains the government has deferred a permanent increase, so for about two years the concessional cap is $25,000 instead of $50,000. This particularly affects fifty‑somethings with less than $500,000 in super, who were expecting the higher $50,000 cap.
What is the government co-contribution and who qualifies for it?
The government co-contribution tops up after‑tax super contributions. The article says people earning less than $61,920 who pay in $1,000 after tax will qualify for bonus money, with a full match for those earning under $31,920 and the co‑contribution phasing down as income rises. Note this measure is slated to be scaled back next year, with the maximum co‑contribution falling to $500 and the qualifying salary threshold reduced.
Can I get a tax offset by contributing to my spouse’s super?
Yes — the article notes you can pay an after‑tax $3,000 into a spouse’s super if they earn less than $13,800 and receive a tax offset of $540. The piece also points out many people overlook this opportunity and directs readers to ato.gov.au for more details.
How can I find lost or unclaimed superannuation money?
The article states there’s about $730 million unclaimed across 2.3 million super accounts. You can search for lost super using the ATO’s SuperSeeker tool on the ATO website — you’ll need your tax file number to look up accounts.
How will the $25,000 concessional cap affect transition‑to‑retirement strategies and long‑term planning?
With the new $25,000 cap (which includes employer contributions and salary sacrifice), the article warns transition‑to‑retirement strategies that rely on large salary sacrifice amounts may lose their tax advantage. It also suggests those further from retirement shouldn’t leave super to the last minute — sheltering the full $25,000 from around age 35 helps if you aim for long‑term targets such as a million‑dollar balance.
Are there other upcoming tax changes for super I should know about?
Yes. The article highlights the low income super contribution that automatically refunds up to $500 into super for people earning less than $37,000. It also warns that contributions tax for people with income above $300,000 (including salary, adjusted fringe benefits, tax‑free pensions and total net investment loss) will double from 15% to 30% — still below the 45% top marginal rate.
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