It’s mid-June and in Australia, that means cold mornings, strawberry moons and tax time preparations. Tax time can be a frantic time of year for a lot of Australians. And come 30 June 2020, the financial year (FY20) will be over and a new one about to start (FY21). We all need to be ready for that to happen – those deductions, subscriptions and donations to charity aren’t going to organise themselves.
I’m sure many of us will be making our way to a Bunnings or Officeworks over the next fortnight – as shareholders of Wesfarmers Ltd (ASX: WES) are no doubt eagerly awaiting.
But there’s another bit of financial housekeeping that we could all look at to help us during tax time, and that’s the option to top up your super.
I know, I know. No one likes super. I mean, most of us like that it’s there, but like children in days of yore, it’s often enjoyed ‘out of sight, out of mind’.
But that doesn’t stop the fact that our super needs a little maintenance from time-to-time. And we happen to be at that special time of year!
A super job before 30 June
Not only is a superannuation fund a savings and investment fund for our retirement, but it’s also something of a legal tax haven. See, most super contributions are taxed at a flat 15% rate, as opposed to most other income which can be taxed all the way up to 47 cents to the dollar. And so if you want to top up your super in the form of adding in extra cash above your employer’s minimum 9.5% (up to $25,000 a year in most cases), it will remain taxed at 15 cents in the dollar. This has the potential to save you a substantial amount in income tax if you do it properly.
In order to claim this tax perk this financial year, you will have to top up your super before 30 June. Otherwise, it will count toward’s FY21’s cap rather than FY20’s.
So, if you want to turbocharge your super fund’s compounding returns (and the chances of living your best retirement), think about making some concessional contributions before this date. Of course, it’s always a good idea to speak with your own tax agent or financial advisor to be sure this is the right option for you.
Too many people aren’t taking full advantage of what topping up their super can do for them and I think it’s important to spread the word on how the FY20 tax time can help!