Make Additional Super Contributions to reduce your tax
How does this strategy work?
You may be aware that superannuation is the best investment vehicle for tax purposes out there.
It’s also easy to put this in the back of your mind for a number of reasons.
You might think:
1) “I can’t touch it now, so why bother…”
2) “There’s hardly anything in there, so I’m going to concentrate on making money in my business.”
3) “The laws change every five minutes, I’d rather not worry about it.”
But while those thoughts may have an element of truth, there are some very effective ways to incorporate your superannuation into a broader wealth creation and tax planning strategy.
For instance, you can:
1) Use your superannuation to purchase your business premises, even if you don’t have the full amount in super
2) Pay 15% tax on earnings on your superannuation if you’re accumulating a balance.
3) Pay 0% tax on earnings if you’re drawing a pension (with conditions, if you’re over 55).
So here’s how the numbers would crunch.
The example we’ll use is where your taxable income is $200,000.
Option 1 (Without Tax Planning): Pay in your own name
The tax rate in your own name would be at individual rates, of up to 47%.
So you’d be up for $67,547 Tax.
Option 2 (With Tax Planning): Contribute $22,000 to Super prior to 30 June.
Your taxable income would reduce to $178,000.
By contributing $22,000 to super prior to 30 June you’d save $7,040 in tax, when compared to paying in your own name.
What do you need to implement this strategy to make additional super contributions?
- A Business.
- Cashflow available put into super.
- A chat with an Inspire Chartered Accountant – www.calendly.com/inspireca.
- To take action prior to 30 June.
FAQ’s: Super contributions to reduce tax.
Do I ever get taxed on money in Super? If so, when?
Yes, you get taxed at 15% in super for everything you contribute and claim a tax deduction for.
This 15% is paid by your super fund when they lodged the tax return (if you own an SMSF); or the tax is taken straight from your balance when you deposit it if you are using a public super fund.
Is there a limit as to how much I can put into super?
Yes, there sure is.
The limit is $30,000 if you’re 48 years old or younger.
And $35,000 if you’re 49 years, plus.
The limits are a lot higher (up to $540,000) if you’re making the contributions from after tax money.
What happens if I don’t have the cashflow to put into super?
To get the tax deduction, the super needs to be paid by 30 June of the year.
Make Additional Super Contributions now before your opportunity is missed for another year.
If I have many family members, can we pool our Super limits?
A super limit is per person.
And yes, you can contribute the $30,000 or $35,000 for each person. It will end up in their own super account, though, so for instance, you cannot ‘borrow’ a super limit from another family member and pay yourself $40,000 instead of $35,000.
NEXT STEPS: You can book in a Quick 10 Min Chat here with an Inspire Chartered Accountant to talk about Tax Saving Strategies that will work for you.
Ben Walker of Inspire SMSFS Pty Ltd (1243433) is an authorised representative of Finance Wise Global Securities Pty Ltd ABN 60 146 708 045. Finance Wise Global Securities Pty Ltd holds an Australian Financial Services License (No. 397877).