GROWING YOUR SUPER

Are you nearing retirement or just want to put a little extra away for the future without putting a strain on your household budget? Contributing to superannuation might be your best bet. There are two main ways to boost your super balance, salary sacrificing super (if your employer has made that option available) and personal super contributions.

The end of the financial year is nearly upon us, and there is no better time than now to get your financial plans in place for next year. If you’re nearing retirement or just want to put a little extra away for the future, contributing to superannuation might be your best bet, this is especially true if you’re female. Research has previously shown that women retire with an average of $120,000 less in their superannuation than men due to a combination of the gender pay gap, taking time off paid work, and working part-time. 

There are two main ways to increase your super balance without putting too much strain on your weekly household budget, salary sacrificing super (if your employer has made that option available) and personal super contributions. 

Salary sacrificing super

Put simply, salary sacrifice is an arrangement where you forego part of your salary in return for your employer providing the amount sacrificed into super. You should beware that your salary sacrificed contributions are considered to be contributions from your employer (eg if you decide to salary sacrifice 5% into your super your employer would only legally have to contribute 4.5% instead of the 9.5%). 

Therefore, before you commence any salary sacrifice arrangement, it is advisable that you and your employer clearly state and agree on all the terms of the agreement. This may involve an explicit agreement between you and your employer that specify that they continue to pay the minimum super guarantee amount ignoring any salary sacrifice contributions you may make. 

Salary sacrifice is a tax-effective way to boost your super, as the sacrificed component is not counted as your assessable income for tax purposes (provided the salary sacrifice arrangement itself is “effective”) and hence is not subject to PAYG withholding tax. Although there are no limits per se to salary sacrificing superannuation, any sacrificed amounts are counted towards your annual concessional contributions cap. Therefore, tax-effective salary sacrificing arrangements are effectively limited to the concessional contributions cap. 

Personal super contributions

Personal super contributions are the amounts you contribute to your super fund from your after-tax income (ie take home pay). These contributions are in addition to the compulsory super contributions your employer makes and does not include any contributions made through salary sacrifice arrangements. 

Prior to 1 July 2017, only self-employed people could claim a deduction for personal super contributions, but from 1 July 2017, most people (regardless of their employment arrangement) are able to claim a full deduction for personal super contributions they make to their super until they turn 75. However, if you’re between the age of 65 and 75, you will need to meet the “work test” to be eligible to claim the deduction. 

If you have made a personal super contribution and want to claim a tax deduction, you will need to complete and lodge the form “Notice of intent to claim or vary a deduction for person super contributions” with your super fund and have this notice acknowledged in writing by your fund. You will need to do this before you lodge your tax return for the income year in which you are claiming a deduction for. 

Interested in making a personal contribution?

Would like to make a personal contribution and claim a deduction for tax time? Or maybe you would like to find out whether or not you qualify for the work test? Whatever it is, from setting up an effective salary sacrifice arrangement for the next financial year, to other strategies to make the most of your super, we can help you avoid all the pitfalls and get it right.