Potential tax savings through super

Here are five super strategies that could help you save tax before end of financial year.

Key takeaways:

• If you contribute some of your after-tax income or savings into super, you may be eligible to claim a tax deduction
• Making a salary sacrifice contribution into super could see you pay less tax than if you received the money as take-home pay
• If your spouse is not working or earns a low income, making an after-tax contribution into their super may see you qualify for a tax offset of up to $540.

Want to help boost your retirement savings while potentially saving on tax?

Here are five smart super strategies to consider before the end of financial year.

With all super strategies, there is specific eligibility criteria. To see if you’re eligible, check the Australian Taxation Office.

1. Add to your super – and claim a tax deduction

If you contribute some of your after-tax income or savings into super, you may be eligible to claim a tax deduction. This means you’ll reduce your taxable income for this financial year and potentially pay less tax.

How it works

The super contribution is generally taxed at up to 15% in your super fund (or up to 30% if you earn $250,000 or more).

Depending on your circumstances, this may be a lower rate than your personal tax rate, which can be up to 47% (including the Medicare Levy) – so you could save up to 32%.

It’s important to note that there are limits on the amount of personal contributions you can claim as a tax deduction each financial year. The cap—which includes both employer and personal contributions—is $27,500 for the 2022-23 financial year. If you exceed this cap, you may be subject to additional tax.

You may be eligible to contribute more than $27,500 without penalty if you didn’t use the whole cap in previous years. This is called catch-up concessional contributions which apply to unused cap amounts since 1 July 2018 and can be carried forward for up to five years.

Note: to claim a tax deduction, you need to notify your super fund in writing and lodge a ‘Notice of intent’ form. You must also receive an acknowledgement from them.

2. Get more from your salary or a bonus

If you’re an employee, you may be able to arrange for your employer to direct some of your before-tax salary, or a bonus, into your super as a salary sacrifice contribution.

Potentially you’ll pay less tax on this money than if you received it as take-home pay. This is because you’ll only be charged 15% tax rather than your personal tax rate which could be up to 47% (including Medicare Levy).

How it works

Ask your employer if they offer salary sacrifice. If they do, it can be a great way to help grow your super in a tax-effective way.

Note: salary sacrifice amounts count towards your concessional contribution cap which is $27,500 for the 2022-23 financial year—along with any super contributions from your employer and personal contributions you claim as a tax deduction. 

You may be eligible to contribute more than $27,500 without penalty if you didn’t use the whole cap in previous years. This is called catch-up concessional contributions which apply to unused cap amounts since 1 July 2018 and can be carried forward for up to five years.

3. Boost your spouse’s super and reduce your tax

If your spouse isn’t working or earns a low income, you may consider making an after-tax contribution into their super.

This strategy could potentially benefit both of you as you could qualify for a tax offset of up to $540.

How it works

You may be able to get the full tax offset if you contribute $3,000 and your spouse earns $40,000 or less per year.

A lower tax offset may be available if you contribute less than $3,000, or your spouse earns between $37,000 and $40,000 per year.

This contribution counts towards your spouse’s non-concessional contribution cap.

4. Get a super top-up from the Government

If you earn less than $57,016 per year, and at least 10% is from your job or a business, you could consider making an after-tax super contribution. If you do, the government may make a ‘co-contribution’ of up to $500 into your super account.

How it works

The maximum co-contribution is available if you contribute $1,000 and earn $42,016 per year or less. You may receive a lower amount if you contribute less than $1,000 and/or earn between $ 42,016 and $57,016 per year.

The contribution you make counts towards your non-concessional contribution cap.

5. Convert your savings into super savings

Another way to invest more in your super is by making an additional contribution with some of your after-tax income or savings.

Although these contributions don’t reduce your taxable income for the year, you can still benefit from the low tax rate of up to 15% that’s paid in super on investment earnings.

This tax rate may be lower than what you’d pay if you held the money in other investments outside super.

How it works

Before you consider this strategy, make sure you’ll stay under your non-concessional contribution cap— which is $110,000 for 2022-23 or potentially up to $330,000—if you meet certain conditions. Penalties apply if you exceed the cap.

Also, to use this strategy in 2022/23, your total super balance must have been under $1.7 million on 30 June 2022. 

Important information: This document has been prepared by IOOF Investment Management Limited (IIML) ABN 53 006 695 021, AFS Licence No. 230524 as Trustee of the IOOF Portfolio Service Superannuation Fund ABN 70 815 369 818 (Fund). IOOF Employer Super is a Division of the Fund. IIML is part of the Insignia Financial of companies, consisting of Insignia Financial Ltd ABN 49 100 103 722 and its related bodies corporate. This is general advice only and does not take into account your financial circumstances, needs and objectives. Before making any decision based on this document, you should assess your own circumstances or seek advice from a financial adviser and seek tax advice from a registered tax agent. Please obtain and consider the PDS and the Target Market Determination (TMD) both of which are available for consumers to better understand products before making any decision about whether to acquire a financial product. Information is current at the date of issue and may change.