As the end of the financial year approaches, now is an ideal time to think about ways that you could grow your superannuation.
Here are some strategies you can consider that will enable you to streamline your finances while also seeking some generous tax breaks.
Also known as before-tax contributions, these are the funds that go into your super account from your income before-tax. They include employer contributions, salary sacrifice payments and personal contributions you claim as a tax deduction. The concessional contributions cap is $25,000 for all ages for the 2018-19 financial year.
Individuals must work at least 40 hours in a 30 day period within the financial year to satisfy the “work test” before they can make a contribution. The 2019-20 Federal Budget extended the work test exemption age from age 64 to 66, allowing greater flexibility in contribution rules for members aged 65 and over. From 1 July 2020, Australians aged 65 and 66 will be able to make voluntary superannuation contributions of up to $300,000 in a single year without meeting the work test.
Before-tax contributions are not the only way to top up your super account. Non-concessional contributions are made into your super fund from after-tax income. They include contributions made by you or your employer on your behalf from after-tax income, contributions made by your spouse to your super fund, or personal contributions not claimed as an income tax deduction. The annual non-concessional contribution cap for the 2018-19 financial year is $100,000.
Where your total superannuation balance is $1.6 million or above, your non-concessional cap will be zero for future years. If non-concessional contributions have been made in excess of the $1.6 million balance, you should discuss this with your accountant.
Contributions that are paid by a spouse into the superannuation account of another spouse can be a useful way to grow your partner’s fund and provide tax benefits in some cases.
Under spousal contribution eligibility requirements, an individual can claim an 18% tax offset of contributions up to $3,000 made on behalf of a non-working partner. A further $3,000 can then be contributed with no tax offset. The changes delivered in the 2018-19 Budget now allow spousal contributions to be made until age 74, up from age 65, without having to meet the work test.
In order to receive the maximum tax offset of $540 for the 2018-19 financial year, you must contribute to your partner’s super fund (either de-facto or married) by 30 June and your spouse’s income must be $37,000 or less. The tax offset is then progressively reduced until it reaches zero for those who earn $40,000 or more.