Superannuation can be one of the most tax effective ways to build your retirement nest egg. There are a range of strategies you can consider to boost your super savings.
Consolidate your super
If you’ve had several jobs since you started working, you may have money in more than one super fund. More than one super fund means you could be paying unnecessary fees and insurance premiums on each one. Combining all your super funds into one can make your super easier to track, simpler to manage and ensure your savings are working hard for you.
Keep in mind, certain lost super accounts with balances of less than $6,000 (as well as the balances of members not able to be identified by their fund), have been automatically drawn together by the Australian Tax Office (ATO) to reduce your account fees. In addition, from 1 July 2013, the Government started paying interest linked to the Consumer Price Index (CPI) on all lost super accounts reclaimed from the ATO.
So your super savings will keep pace with inflation.
Track down your super
One way to find out where your super is located is by checking the statements you have received from each of your previous super funds or by calling your past employers. If you can’t trace your super, it may be classified as ‘lost’. Your super may be considered ‘lost’ if:
your fund is not able to contact you and no rollovers
or contributions have been made in the past year
you’ve been a member for at least two years and no contributions or rollovers have been made in the previous five years.
You can check whether any unclaimed or lost super belongs to you by visiting the myGov website (mygov.gov.au) or asking your current super fund to conduct a search on your behalf using a system called SuperMatch2. You might find a handy sum to boost your super!
Do some housekeeping and make sure your super fund has your tax file number (TFN). This will make it easier to find lost super, move your super between accounts and receive super payments from your employer or the Government. Once you’ve tracked down all your super, you need to decide which super fund best suits your personal and financial circumstances. Before deciding on a fund, compare the costs and benefits of each.
There are four important things to consider before moving your super:
Will an exit fee be deducted from your investment?
Are there any investment and/or taxation implications?
Will you need to make new insurance arrangements? And will your new super account have adequate insurance coverage compared to your old account?
Will your current employer contribute to the chosen super fund?
Currently, most employees receive super guarantee (SG) contributions from their employer of at least 9.5%1 of their salary. Adding to these contributions directly from your gross (pre-tax) salary can be an easy and tax-effective way to top up your super. This is called salary sacrifice.
Some of the benefits of salary sacrifice are:
It’s simple, automatic and consistent.
You do not pay income tax on salary sacrifice contributions to super (up to certain limits). Your super contributions are generally taxed at 15%2, which may represent a significant tax saving, particularly if you are on the highest marginal tax rate of 45% plus applicable levies.
By making a salary sacrifice contribution, you can reduce your taxable income.
The difference in taxation may mean more money is available to invest in super than if you were to receive the money as after-tax income and then invest it.
Future earnings on contributions made to super are concessionally taxed at a maximum of 15%.
You should check with your employer first to see whether salary sacrifice arrangements are available and that adopting a salary sacrifice strategy will not reduce the amount of SG contributions your employer pays on your behalf.
Personal tax-deductible contributions
You can generally claim a full tax deduction for personal contributions you make to super. While still subject to the concessional contributions cap, this strategy may prove timely if you have made a considerable capital gain from the sale of a property or shares – as your deductible contribution to your super fund may help to offset your assessable capital gain. Not only could it reduce your marginal tax rate, it may also boost your super balance for retirement.
Personal tax-deductible contributions can also be a flexible way of maximising your concessional contributions near the end of a financial year.
Note that if you are not able to claim your super contributions as a tax deduction (for example, your income for the year is too low), they will be treated as after-tax (non-concessional) contributions.
To make a personal tax-deductible contribution, you need to submit a valid deduction notice to your super fund within strict timeframes, and have it acknowledged by your fund in writing.
Take advantage of the government co-contribution
To encourage you to save for your retirement, if your total income3 is $36,813 pa or less and you make a $1,000 after-tax contribution to super, the Government will generally contribute $500 to your super.
The co-contribution is calculated as 50% of your after tax contribution, but the maximum $500 government co-contribution also reduces by 3.33 cents for every dollar you earn over $36,813 pa and ceases once your total income reaches $51,813 pa.
When determining eligibility for the Government co-contribution, earnings that are salary sacrificed to super and reportable fringe benefits come under the definition of total income. If you fit within the income thresholds outlined above, and satisfy some other conditions, contributing to your super from your after-tax salary before the end of the financial year may be a great way to top up your super, and get an extra boost from the Government.
Your financial adviser can give you the latest updates and more information on this opportunity.
Split super contributions with your spouse
If you have a spouse, you are permitted to transfer certain super contributions from the previous financial year over to the super account of your partner. If the receiving spouse is over preservation age at the time of the split request, he or she must declare that they are not retired. Splits cannot be done once the receiving spouse turns 65. You can do this every year, generally once the financial year has ended. Up to 85% of taxable (concessional) contributions such as SG, salary sacrifice and personal tax-deductible contributions made to super can be transferred.
There are several reasons for considering splitting super with your spouse:
There may be potential tax advantages to withdrawing the money from two super accounts rather than one (between preservation age and age 59).
Transferring contributions from the younger spouse to the older spouse could enable you to access more retirement money earlier.
Transferring money from the older spouse to the younger spouse could enable the older spouse to receive more Age Pension by delaying the date at which their super becomes an assessable asset.
Splitting superannuation monies does not count towards the receiving spouse’s contributions cap.4
To help equalise balances between you and your spouse. From 1 July 2017, a $1.6 million ‘transfer balance cap’ applies to limit the total amount of super savings you can use to commence retirement phase income streams (where earnings on assets are tax free). Because this cap applies on an individual basis, equalising super balances between members of a couple can ensure that both members stay below this cap.
Super splitting is not offered by all funds, so you will need to check whether your fund offers this feature.
The benefits of spouse contribution tax offsets
Another potential tax concession is a spouse contribution tax offset. This strategy may be available if you make after tax contributions directly to your spouse’s super account – these are known as eligible spouse contributions. To take advantage of this strategy, your spouse will need to be under age 65 or aged 65 to 69 and have satisfied a work test during the financial year. You can open a super account in your spouse’s name and make contributions to that account from your after-tax pay. You can also make these contributions to your spouse’s existing super account.
If your spouse’s assessable income, reportable employer super contributions and reportable fringe benefits are under $37,000 pa, you will receive an 18% tax offset on the first $3,000 you contribute on their behalf, up to $540 pa. The offset operates on a sliding scale and phases out to zero once their income exceeds $40,000 pa.
A word on contributions caps
When considering any super strategy, it’s important to assess how much you are contributing to super in any one year. The Government has set annual limits – known as contributions caps, and additional tax may apply where you exceed the caps5.
The contributions caps for the 2017-18 financial year are6:
A concessional contributions cap of $25,000 per financial year.
A non-concessional contributions cap of $100,000 per financial year, or $300,000 over a three-year period (known as the bring forward rule) if you are under age 65 any time during a financial year. In addition:
- Your non-concessional cap reduces to Nil once your total super balance7 (just before the start of the year) is $1.6 million or more.
- The cap you have available under the bring forward rule will reduce once your total super balance (just before the start of the year) is $1.4 million or more.
- If you triggered a bring forward rule in 2015-16 or 2016-17 (the bring forward cap was $540,000 at that time) but did not use all of your cap by 30 June 2017, transitional rules will reduce the remaining cap you have available.
In order to make voluntary super contributions, at the time of the contribution, you must be:
- Under age 65
- Aged 65 to 74 and have been employed for gain or reward for 40 hours in a 30 consecutive day period during the financial year
- This includes up to 28 days after the end of the month in which you turn 75
- Spouse contributions cannot be made where the receiving spouse is aged 70 or over
Voluntary contributions generally cannot be made once you have reached age 75.
Compulsory contributions (e.g. Super Guarantee) can be made at any time regardless of your age.
Ways your adviser can help
It’s important to keep your financial adviser informed about any super contributions you make so they can ensure you don’t exceed these caps. Contributions over these caps can be taxed at up to 47%.5
When assessing your concessional contributions you will need to include all employer superannuation guarantee contributions from any employers over the year and any salary sacrificed amounts, as well as personal contributions for which you will claim a tax-deduction.
1. The SG rate will be 9.5% until the end of financial year 2020/21. After that it will increase gradually each financial year by 0.5% until it reaches 12% on 1 July 2025.
2. If your total income (including your concessional contributions) exceeds $250,000. you will need to pay an additional 15% tax on part or all of your concessional contributions.
3. Total income equals assessable income plus reportable fringe benefits plus reportable employer super contributions, less business deductions (other than for work related expenses or personal super contributions).
4 The original contribution made does count towards the members' concessional contributions cap.
5 Contributions made in excess of your concessional contributions cap are effectively taxed at your marginal tax rate, plus an interest charge. You are also able to withdraw up to 85% of any excess concessional contributions. Contributions made in excess of your non-conessional contributions cap are taxed at 47%, however, you will generally instead have the option of withdrawing non-concessional contributions above your cap tax free, plus an associated earnings amount which is taxed at your marginal tax rate less a 15% tax offset. Interest charges may also apply to the amount of tax payable to cater for timing differences on when the tax is payable.
6. Contributions caps were significantly reduced from 1 July 2017. Higher concessional and non-concessional contribution caps applied for the 2016-17 financial year.
7. Total super balance is broadly the total of all your superannuation accounts, whether in the accumulation or pension phase.
The information on the Website is or a general nature only and has been prepared without taking into account your, or any other investor's, particular financial needs, circumstances and objectives. The information on this website should not be construed as financial, taxation or legal advice. Hastings Financial recommends that you consult a financial adviser for advice that addresses your specific needs and situation before making investment decisions.