Did you know that you can make a concessional superannuation contribution and get $5000 or more as a tax refund this year?
Super concessional contribution caps
There is a limit on how much you can put into super each year from your pre-tax income. Such contributions are called concessional contributions.
From 1 July 2021, you can contribute up to $27,500 into your super fund. This includes your employer’s super guarantee contribution, any salary sacrificed amounts and tax deductible personal contributions (see below for more details on salary sacrificing super and making tax deductible contributions). This is called the concessional contributions cap.
From 1 July 2018, you can carry forward the unused part of your $25,000 annual concessional contributions cap for up to five years (using up the earliest year first) provided your superannuation balance is less than $500,000. This means that the 2019/20 financial year (ie, the year beginning 1 July 2019) is the first year that unused concessional contribution amounts can be used.
Prior to 1 July 2022, if you were aged between 67 and 74, you could only make concessional contributions if you passed the “work test”. That means that you had to work 40 hours or more in a consecutive 30 day period in the financial year in order to make contributions. From 1 Juy 2022, you do not need to pass the work test unless you are claiming a tax deduction for your personal superannuation contributions. The trustee of the superannuation fund will no longer have to apply the work test when they accept superannuation contributions from their members. For individuals between 67 and 74 wishing to claim a tax deduction for their super contributions, the ATO will administer the work test when the tax return is lodged.
After-tax contributions
After-tax contributions are known as ‘non-concessional contributions’ because you don’t receive a tax deduction. Such contributions are the easiest way to top up your super as you simply deposit your own money into your super account. If you have some spare cash, this is a great way to give your retirement savings a boost because the money is then in a low-tax environment, meaning you’ll generally get a better return than if you’d invested in the same assets outside super.
Contributions from your after-tax income don’t get taxed when your fund receives them because you have already paid tax on the income from which the contribution was paid
From 1 July 2021, you can pay up to $110,000 in non-concessional contributions each year. However, if your superannuation balance is more than $1.7 million you cannot make non-concessional contributions. There is also a three year “bring-forward” rule for taxpayers who are under 67 years of age which allows you to contribute of up to $330,000 for the current and next two income years.
Making tax-deductible top-up super contributions
From 1 July 2017, you can make additional concessional contributions up to your concessional contributions cap (currently $27,500 plus any unused amounts from 2019 onwards) and claim an income tax deduction for doing it. Prior to 1 July 2017, only the self-employed and those not working were able to claim such a tax deduction (and then only if you received less than 10% of your total assessable income from employment).
The removal of the 10% income restriction, and the ability to carry forward unused amounts of the concessional cap from prior years, greatly increases the capacity for people to top-up their super fund, provided they don’t breach their concessional contributions cap. A 15% contributions tax is deducted from any superannuation contribution that has been claimed as a tax deduction.
If you are aged between 65 and 74 years of age, you’ll still need to pass the work test (see above) to make a tax-deductible contribution.
Example
Jo is a fulltime dental assistant. During 2021-22, she earned $85,000 before tax. Jo has no other income. She made a personal contribution of $15,000 to an eligible superfund during the income year and notifies them that she intends to claim a deduction. Jo’s superfund acknowledges that she will claim a $15,000 deduction and taxes the contribution at 15% ($2,250). Jo is eligible to claim a deduction for $15,000 and does this in her 2022 Income tax return. This deduction will increase her tax refund by $5,175, an overall tax saving of $2,925.
Note: As well as making super contributions from your self-employed income or employment income, it is also possible to make super contributions from investment income (including dividends or rental income) and capital gains.
How can we help?
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