The start of May is a good time for individuals to consider opportunities to claim tax deductions on additional superannuation contributions.
Some quick notes before we get into the strategies
All contributions must be received and credited by your super fund by 30 June in order to claim deductions on them.
You must complete and provide a Notice of intent to claim to your super fund on or before whichever of the following days occurs earliest, either:
- the day you lodge your tax return for the year in which the contributions were made
- the last day of the income year after the income year in which you made the contributions.
Your super fund must acknowledge receipt of this notice of intent in order for you to make a valid claim.
To play it safe, we suggest making your personal contribution at least two weeks before the end of the financial year. It’s best to immediately notify your super fund that you intend to claim a tax deduction to ensure you’ve met that requirement.
What are the benefits of contributing more to super? While any money you put into super is locked away until you reach preservation age (for anyone born after 1 July 1964 this is when you turn 60), superannuation is one of the most tax-favoured environments within which to build wealth. If you’re looking for somewhere to put long-term savings, super can be an ideal place for them.
What end-of-financial-year super strategies are available to you?
1. Maximise the concessional contribution cap
Concessional super contributions are taxed at 15% (unless they’re untaxed – like the GESB West State account) when they are received by your super fund. For most people (paying higher marginal tax rates than 15%) this represents a significant opportunity to pay less tax while boosting retirement savings.
For the 2022-23 tax year, the concessional contribution cap is $27,500. If the amount of super you are set to contribute this year (including your employer contributions) doesn’t reach that cap, you can top up your super to that amount, pay less tax and boost your retirement savings at the same time.
It’s worth noting here that if your combined income and concessional contributions are greater than $250,000, you may be charged a “Division 293 tax”, which is an additional 15% tax on some or all of your super concessional contributions.
2. Make use of carry-forward concessional contributions
If you had a superannuation balance of under $500,000 as of 30 June of the previous year, you can carry forward unused concessional contributions from a previous financial year. The unused cap amounts you will be able to carry forward will depend on the amount you have contributed in previous years, starting from 2018–19. You can use caps from up to five previous financial years. The cap amounts in each of those tax years are as follows:
|Income year||Your concessional contribution cap|
Here’s an example that shows how impactful this strategy can be:
Let’s say you worked from 1 July 2018 and your total super contributions for each tax year were $10,000. By the start of the 2023 tax year, you would have the opportunity to carry forward an amount up to the unused cap amount of $62,500 plus the available cap in that year of $27,500 for a total of $90,000. These contributions will be taxed at the concessional rate of 15%.
The important thing to understand here is how the cap changes based on contributions made in previous years. The table below demonstrates uses the above example and shows how the available carry-forward concessional contributions for a given year change based on what the cap was in previous years, and what was contributed.
|Income year||Your concessional contribution cap||Your concessional contributions||Available carry-forward concessional contributions (cumulative)|
Note that carry-forward contributions expire 5 years after the year in which they accrue. Unused contributions from the 2018-19 tax year (the first year you could carry forward contributions) expire on 30 June 2024. This means you can make 6 years of concessional contributions in one year using this strategy (5 years carry-forward plus the current year’s contributions).
3. Contribute to your spouse’s super
If you’ve maxed out your cap for this year and your spouse’s income is under $37,000 (between $37,000 and $40,000 the offset shades out), you may pick up a tax offset of up to $540 by making a spouse contribution to their fund.
4. Make use of government co-contributions
If at least 10% of your total income is ‘eligible’ income and you earn less than $57,016 (the upper limit for the 2022/23 financial year) and make an after-tax (non-concessional) contribution to your super account, the Government may also make a contribution.
The amount you’ll receive depends on how much you earn and how much you contribute. If you earn less than $42,016 (the lower limit for the 2022/23 financial year), then for every dollar you pay the Government will add 50 cents, up to a maximum of $500.
This table shows what you could receive as a Government Co-contribution for the 2022/23 financial year based on how much you contribute as an after-tax contribution before 30 June 2023:
|Your personal contribution||$1000||$500|
|If your annual income is:||Govt co-contribution to your super:|
|Up to $42,016||$500||$250|
|$57,016 (or more)||Nil||Nil|
5. Make use of non-concessional contributions
Non-concessional contributions are contributions that have been made to a superannuation account with after-tax dollars. That is, a tax deduction has not been claimed for making the contribution or it has not been made with pre-tax income.
The benefits of making non-concessional contributions are:
- The rate of return inside superannuation may be higher after-tax than investing outside superannuation. (Earnings inside superannuation are taxed at a maximum rate of 15%.)
- The non-concessional contributions cap, currently $110,000, is four times the concessional contribution cap.
- Your tax-free component will increase. This amount can be withdrawn tax-free in the future, subject to preservation rules which determine when you can access your super savings.
- The tax-free component when forming part of your estate can be paid to anyone tax-free.
- You can use the bring forward rule and use up to 3 financial years of contributions or $330,0000 at once. In reviewing end-of-financial-year contribution strategies you can even look at contributing $110,000 before 30 June and $330,000 after 1 July to get $440,000 into superannuation in the space of a few weeks. Note that in doing so you will be excluded from contributing to super for the following three financial years.
6. Consider salary sacrificing into super in the future
If your salary has changed and knowing that the superannuation guarantee amount and super limits have changed, the end of the financial year is a good time to review whether to start, or continue, salary sacrificing into super. (This is an arrangement where you forego part of your before-tax salary and have it paid into your super account instead.)
Salary sacrificing into super is a good way to boost your super balance and set you up for retirement. There may also be tax advantages to it depending on how much you earn.
It’s important to keep in mind that salary sacrifice contributions count towards your concessional contributions cap each financial year so you do need to be sure you don’t exceed that limit.