The EOFY is a time when I’m regularly asked for one easy-to-implement tax tip that provides tremendous bang for buck. If that sounds like something that would interest you, you’re in luck.
In this post, I will cover one of the most effective ways to cut your tax bill with the bonus of boosting your superannuation simultaneously. You may have heard of it: A Concessional Contribution to Super.
What is a Concessional Contribution?
A personal contribution paid to your super fund by you which is then claimed as an income tax deduction on your annual tax return.
Example:
Let’s consider Sarah, a 35-year-old designer.
Sarah earns $120,000 per year and pays tax at a marginal tax rate (including Medicare Levy) of 34.5%. Without any action, Sarah would pay $31,867 in income tax for the year.
Sarah has some savings and decides to contribute an additional $5,000 to her super fund. When she claims $5,000 as a tax deduction, her tax is reduced to $30,142 – a saving of $1,725 in personal income tax.
Important EOFY Tax Tip Considerations
While the tax benefits are great, there are consequences to consider before diving in.
Goal conflicts: Remember that super contributions are generally locked away until retirement age. Money in the bank can be advantageous if you want to apply for a new loan or refinance an existing loan. You may also have a lifestyle or cash flow need – cash is king, after all. A financial planner might be helpful for you to navigate the impact of your decisions.
Contribution Limits: To avoid potential penalties, be mindful of the annual contribution caps imposed by the ATO. The current contribution limits are available here.
Implementation: You can find forms and information on claiming deductions for personal super contributions here. There are a few nuances with contributing to superannuation correctly. Ask your fund, financial adviser, or accountant to check your paperwork before submitting it.
There you have it – a simple yet effective EOFY tax tip to optimise your finances, trim your tax bill, and supercharge your retirement savings.
You can make Concessional Super Contributions before EOFY directly by reaching out to your super fund. However, we recommend scheduling a free consultation with one of our professional advisers first. Here we can discuss the pros and cons in more detail so you can get a better understand of the implications and complexities.
At Finspective, we have a team of Tax, Superannuation and Retirement Planning professionals under one roof to help answer any questions you may have.
If you want to optimise your tax outcomes and build your wealth for retirement at the same time, our Accounting & Tax Professionals have the skills, knowledge and tools to get you sorted.
Any advice on this site is general nature only and has not been tailored to your personal objectives, financial situation and needs. Please seek personal advice prior to acting on this information. Any advice on this website has been prepared without taking account of your objectives, financial situation or needs. Because of that, before acting on the advice, you should consider its appropriateness to you, having regard to your objectives, financial situation or needs.
