The end of the financial year is a little more than a week off and there's one tax tip that could save you thousands if you act quick.
This often overlooked exercise is to maximise your concessional superannuation contribution, and this financial year could be a particularly important time to undertake this review for many investors.
Why you should think more about taxes this year
For many, things were going well prior the COVID-19 crisis. Jobs were relatively easy to find, the economy was strong and the S&P/ASX 200 Index (Index:^AXJO) was trading at record highs.
Things looks a little more challenged for FY21 and things may not be quite as good as it was this financial year.
If you share a similar outlook, then it especially makes sense to see if you can reach your concessional super cap before June 30.
Just remember, this article isn't tax advise and is only general information. You should check with your accountant to see if it's right for you.
What are concessional contributions
Many do not think about super because – let's face it, it's boring. Also, people tend to think this is only something to worry about in the distant future as you can't access it till you retire.
So, if you don't know what concessional contributions are, you won't be alone!
The most common type of concessional contribution is the super paid by your employer. While the amount makes up part of your total remuneration package, you don't pay personal income tax on your super contribution.
But you can contribute more to your super on your own (called personal contribution), as long as you follow the rules.
Concessional contribution limits
Individuals are allowed to put in up to $25,000 a year into their super and deduct that from their taxable income. The contribution is taxed in the super fund at 15%.
As most taxpayers have a marginal tax rate in excess of 15%, the tax savings can be substantial, particularly since you can carry-forward unused concessional contributions limits if your super balance is under $500,000.
This carry-forward feature is only available from 1 July 2018 onwards and it's on a five-year rolling basis. After which, unused carry forward "credits" that are unused will expire.
How to lower your tax liabilities
So, if you've received nothing in your super in FY19, you can put up to $50,000 into your super under the concessional scheme and deduct that from your taxable income.
Depending on your marginal rate, this could shave thousands off tax bill.
You can find out more information at the ATO website.
But as I mentioned earlier, you must check with your tax professional to see if this strategy works for you.
