Superannuation contributions are cash, or asset, that are contributed to a compliant superannuation fund for a person under the age of 75. They include personal contributions and employer contributions. These contributions and the earnings from investments are the keys to accumulating funds for retirement.
Superannuation contributions to your super fund can be made in two ways. First, you or your employer can pay concessional (before-tax) contributions to the super fund. Or, you or your spouse, or the federal government, can pay non-concessional (after-tax) contributions to the super fund.
Concessional contributions cap is $25,000 for the years 2017/2018 and 2018/2019. Non-concessional contributions cap is $100,000 for the years 2017/2018 and 2018/2019.
If you are 65 years old or over, you should satisfy a work test before making any super contributions.
The Total Superannuation Balance (TSB) is a restriction on super contributions. For the years 2017-2018 and 2018-2019, having $1.6 million or greater in your super funds, will not allow a person to make non-concessional (after-tax) contributions, get government co-contribution or receive spouse contributions.
Superannuation Contributions Strategies
A superannuation account exist because someone made Superannuation contributions to the account or transferred savings from a pre-existing super account. Super contributions can be made by you or on your behalf by your employer, or your spouse.
There are two types of Superannuation contributions which you can make, these are the concessional contributions (before-tax) and the non-concessional contributions (after-tax). However, each of these types of contribution has super rules which should be followed.
Some of the most popular contribution strategies on how to contribute to superannuation include salary sacrifice, tax-deductible super contributions, non-concessional contributions, bring-forward rule, CGT and super contributions, spouse contributions, re-contribution strategies, downsizing and contributing to super.
This type of superannuation contribution strategy is popular with employees on middle-to-high incomes. What happens is that the employee increases his or her superannuation balance, thereby reducing the amount of income tax payable on his or her salary or wages. Or, when you or your employer agree to pay part of your pre-tax salary as an additional contribution to your superannuation
By salary sacrificing, the individual increases his or her superannuation balance (and pay 15% contribution tax, for those earning more than $250,000, pay 30% tax on super contributions) while reducing the income tax payable (up to 47% including Medicare levy) on his or her salary or wages.
Tax-deductible superannuation contributions
Tax-deductible super contributions can be made by employees since July 1, 2017. Tax-deductible contribution is where an individual claims a deduction for making super contributions.
These are super contributions put into your super fund from pre-tax income and are tax deductible for self-employed individuals. They include super guarantee contributions from your employer. They are usually taxed at 15% when received by the super fund.
These are super contributions put into the super from savings or income you have paid tax on. They are no longer taxed once received by the super fund. The non-concessional (after-tax) contribution cap of $100,000 took effect on July 1, 2017.
The rule allows eligible Australian citizens to contribute 3 years’ worth of annual caps in one year. The amount paid represents the annual cap over a 3 year period. The bring-forward cap is at $300,000.
Capital Gains Tax (CGT) and Superannuation Contributions
Capital gains are profits that an individual or fund makes after selling an asset. Capital gains tax is the tax on the profits made after selling an asset.
According to ATO, CGT refers to income tax paid on any net capital gain made and is included on the annual income tax return. Capital gains are taxed the same way like superannuation structures. But with two main exceptions.
- CGT discount. This is a 1/3 of the capital gain or that the tax appropriate on the capital gains is effectively at 10 percent.
- Tax exemption in the retirement phase. When super assets are in the retirement phase, capital gains are exempted from tax.
This type of contribution is for a spouse who earns a low or has no income. What you need to do is to make contributions to your spouse’s complying super fund and you might be able to claim a tax offset of up to $540.
These are contributions made by the government to a person’s superannuation account based on his or her income, the source of income and personal super contribution. It was created to help low-income earners to have a super before they retire.
The federal government is giving away tax-free money to anyone making non-concessional (after-tax) contribution to their super fund. It is called the co-contribution scheme.
This strategy involves the withdrawal of a lump sum, paying necessary taxes when withdrawing and re-contributing funds into the superannuation. This strategy converts the taxable portion of the super benefits into a tax-free component. It may reduce the potential tax payable when the super is given to your beneficiaries when you die.
Downsizing and contributing to super
Selling the family home is a strategy to keep cash for retirement. The money gained from the sale can be invested in shares, managed funds, term deposits or superannuation. Here, when downsizing earns, the excess proceeds from the sale are invested to the super as non-concessional contribution. It can be up to $300,000 per person and can be added to any other voluntary contribution made under contribution caps. Extra contributions can boost your super savings and help you enjoy a comfortable and happy retirement.
If you have more questions about Superannuation contributions, talk to us. Have a professional’s advice and get help from an SMSF auditor to get the best out of SMSF’s.
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