The end of the financial year presents an opportune time to get your financial house in order, and that goes for superannuation as much as other matters such as tax.
Image source: Getty Images
Before-tax payments strategy
If you're looking to maximise your superannuation contributions for the year, and potentially reduce your tax bill, it's worth having a look at the amount of concessional contributions you have made, and whether you can top that up.
Concessional contributions are contributions made to superannuation from your before-tax salary, and include the super guarantee contributions made by your employer, which are 12% of your salary.
Each year you are allowed to make concessional contributions of up to $30,000. Extra contributions made beyond what your employer contributes can serve to reduce your tax load, as contributions are taxed at 15%.
In terms of figuring out how much extra you can put into your super in this way, it is possible to keep track of your concessional contributions by using the Australian Taxation Office's online services.
Your superannuation fund might also be able to show you where you stand with regards to concessional contributions.
If you do put extra into your super and want it to be a concessional contribution, you need to also lodge a notice of intent to claim, which alerts your super fund that it is a concessional contribution and they will take the 15% tax out as necessary.
This is necessary as it is also possible to make non-concessional contributions of up to $130,000 per year.
How to safely go over the one-year cap
If you do have extra money you'd like to put into super which would put you over the $30,000 yearly concessional cap, it's worth checking whether you have any unused concessional cap amounts from previous years.
If you have less than $500,000 in super at 30 June of the previous financial year, and unused concessional contributions cap amounts for up to the past five years, these can also be claimed.
As the ATO website explains:
If you have unused concessional cap amounts from previous years, you may be able to carry them forward to increase your contribution caps in later years. The oldest available unused cap amounts are carried forward first. For example, unused cap amounts from 2019–20 would be used to increase your cap first before unused cap amounts from 2020–21. Unused concessional cap amounts are applied automatically once you exceed the cap in any year.
It is important not to go over the caps otherwise extra tax can be payable, the ATO says.
While this strategy might be useful, it might not be for everyone, and this article does not constitute financial advice. It's always prudent to consult a financial adviser when setting up a new investment strategy.
