The end of the Australian tax year is looming, and soon workers and their accountants will be toiling away at tax returns, trying to minimise tax debt or maximise a refund. Unless you’re a business owner or an investor, tax minimisation opportunities will relate mainly to job-related and superannuation expenses.
But there’s an opportunity right now to contribute to superannuation before the end of June to provide a useful tax concession.
In the past, most extra contributions to your super have come from arranging salary sacrifices with your employer, so that funds are deducted directly from your payslip and paid into your super. In more recent years, however, Australians have been allowed to draw cash or draw on debt (the source of the cash isn’t important to the super fund) to pay a lump sum into super provided the total doesn’t exceed the $25,000 cap on concessional contributions.
This is a more flexible approach than trying to arrange a big contribution from a salary sacrifice when there’s only a month to go till 30 June. The capacity to draw on debt that you can repay later, or use accumulated savings, means you can make a larger contribution in the weeks remaining than n might otherwise be available to you.
The cap of $25,000 is important however, and your salary sacrifice contributions will already form some of that figure. The penalties for exceeding the cap aren’t severe – if you breach the cap the ATO will simply write to advise you and give you a tax bill on the excess, which you would have paid anyway – but that’s time spent on replying (and maybe on calming down from seeing a letter from the tax office) that’s better spent on reading or Netflix.
Fortunately, keeping tabs on that cap is as easy as contacting your super fund. Let them know you’re planning to pay more into your super, and they can help you work out how much has already been paid in, how much is due from your employer in the weeks remaining of the financial year and, therefore, how much you can contribute now before you hit the cap.
So, find out how much you can contribute, pay that in and enjoy the tax concession benefits that come with making super contributions.
For those with a total super balance of less than$500,000 there are also new rules coming in which will help you plan strategically for the long term. From this year, if you don’t use the whole $25,000 cap, the remaining portion will be carried forward to the following year. Even better, the unused portions from each year will continue to carry forward for a period of five years.
That means if you don’t use any of the cap for a few years, the accumulated total will give you a lot more flexibility, particularly if you’ve had an income spike (from, say, a bonus or the sale of an investment property and its attendant capital gains tax).
For example, you might not make any extra payment this year or next (perhaps because you need to cover the last two years of a child’s school fees) but then in the third year, you could sell an asset and make a larger payment of $75,000 to offset the tax implications.