MONEY MATTERS MONDAY 28TH MAY 2018
Super Option for Many
The new rule allowing anyone including employees to make superannuation contributions and claim tax deductions for them changes the way many people should think about their finances approaching the financial year end. Reducing the tax bill and earning a refund are much more possible.
Anyone under age 65 and those up to 75 and still working can contribute so they should ask themselves two questions – “What is my taxable income likely to be?” and “How much has already been paid into my super fund for the year?”
Save on your tax bill by contributing to super
Anyone whose taxable income this year is likely to be above $37,000, where the 34.5 per cent tax bracket starts, could make a substantial tax saving with a super contribution. Money going into super is taxed at only 15 per cent so 19.5 per cent tax is saved on every dollar put in.
Those in higher tax brackets have even more to gain with potential savings of 24 and 32 per cent. There is an annual limit of $25,000 per person on tax deductible or concessional contributions. This includes employer super guarantee and salary sacrifice contributions.
It is necessary to deduct those amounts from $25,000 to determine the maximum amount each person can contribute. For example someone earning $80,000 and salary sacrificing $100 per week will have $7,600 employer SG contributions and $5,200 sacrifice going in, or $12,800 total.
That leaves $12,200 extra they could put in. They may not have enough savings to contribute the whole amount but any portion will help. For example if they can put $5,000 in they will get a tax credit of $1,725.
Depending on circumstances they may get a tax refund of that amount when they lodge their return. Some may wonder if it is worth spending $5,000 to get $1,725 back. The $5,000 is not lost. It, minus 15 per cent entry tax, is invested in super and growing to fund their retirement.
Older workers in the latter part of their working careers are more likely to favour super contributions. Yet any amount put in by a younger person has many years of growth ahead with compounding interest so it can make a valuable difference to their retirement.
Consider bonuses or income from capital gains
This is an attractive option for people with unusually high incomes this year. People who have realised capital gains from the sale of property or shares, those who have received a large bonus, and anyone self-employed who has had a very good year can all benefit.
For some high earners with little savings it may even be worth considering a short-term loan to fund a super contribution. The loan should be able to be repaid within the next few months though. If a healthy tax refund results that will help.
Russell Tym is an Authorised Representative of MoneyLink Financial Planning Pty Ltd,
an AFSL holder, No. 247360.
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