Top tax hacks
It’s that time of year, when the receipts are collected, and we combine all out financial information to obtain that total number – of course we’re talking about tax time. But unlike David Rose from Schitt’s Creek, most of us are aware that purchasing products you like does not equal a write-off – so how can you get the best tax return? With the rising costs of living, it’s important you’re aware how you can legally beat the tax man. We’re talking super. Like many Australians, you probably don’t know much about it – but the potential savings you can make are significant, so it may be worthwhile reading on, we are talking about your money after all. Super and Tax Besides the extra form you fill out at the beginning of a new job or when starting a business – What is super? Superannuation is a vehicle used to help people save for their retirement. In Australia, Employers are mandated to pay 10.5% of your pre-tax salary into a superannuation account. Any earnings made within your super account are typically taxed at a rate of 15%, compared to your marginal tax rate which can be as high as 45% plus 2% Medicare plus up to 1.5% Medicare Levy Surcharge. When you reach retirement age (otherwise known as preservation age), your fund becomes entirely tax free up to the first $1.7 million per member. This makes superannuation the most tax effective vehicle in Australia. Based on that alone – ask yourself – is investing for your future inside the super environment is, in fact, better than investing personally? The answer is yes. Contributing to your super The super environment will leave you better off than if you invest personally. As a result, many people want to get as much of their wealth into the super environment as possible and, for that reason, the Government put ‘caps’ on how much you can contribute into super. So now that we have your attention – let’s looks at the options, and yes there’s more than one. In fact, there are a few types of contributions you can make: Concessional contributions Concessional contributions are payments made to super from your pre-tax salary. They can be made by your employer, and you can choose to make additional payments yourself through salary sacrifice. The cap for FY22/23 is $27,500. If you’re fortunate enough to earn more than $250,000, any excess super contributions will incur a further 15% tax. If you’re a low-income earner, (under $37,000), you can apply to receive a rebate of up to $500 into your super account through the Low-Income Super Tax Offset. If you haven’t reached the $27,500 cap in recent years, there’s a new rule called the Carry-Forward Rule. If your super balance is under $500,000 at the end of the previous financial year, you’re eligible to utilise any unused concessional contributions for up to five years. Simply go to your MyGov account, click on superannuation and you’ll see what your Unused Super amount is. Non-concessional contributions Non-concessional contributions are payments made to super from your after-tax salary. You can contribute $110,000 for FY22/23, or you can roll three years of non-concessional contributions into one year to the value of $330,000. This is known as the Bring-Forward rule. You can only make non-concessional contributions to super until your super balance hits $1.7 million. Smart ways to get make the most of your super Super co-contribution If you earn less than $57,016 in FY22/23, and you make an after-tax contribution to your super of up to $1,000, you may be eligible for a government co-contribution of up to $500. That’s a pretty good return on investment. Spouse contributions If you have a partner who earns less than $40,000, you can claim a tax offset of up to $540, if you make an after-tax contribution of up to $3,000 to their account. Contribution splitting Given the $1.7 million cap, where possible, you make consider splitting your pre-tax (concessional) contributions to your partner. Many people don’t realise they can do this up to the cap of $27,500. You just need to speak to your super fund to action it. Downsizer contribution If you’re aged 60 or over and lived in your primary residence for at least 10 years, there’s a new opportunity to contribute $300,000 from the proceeds in a lump sum to your super. A great opportunity to get more money into super as you’re nearing retirement. So, what’s next? It’s time to action If you enjoy investing, and you’re starting to build up your superannuation, perhaps it’s time to consider self-managed superannuation? For many, super is their second largest asset after the family home, therefore spending some time to take control of your financial future may be your most prudent investment yet.