While the 30th of June is still a while away, a stress-free tax lodgment is achieved through planning and sound professional advice. In order to help you prepare for the end of the financial year, we planned the series of articles Tax Ready with #HoffmanKelly.
Our second topic for the series Tax Ready with #HoffmanKelly is Superannuation. More specifically, tax planning strategies for superannuation can significantly reduce your taxable income.
Superannuation provides a great opportunity to achieve some tax savings, especially if you have unusually high taxable income for a particular financial year. For example, you might have decided to sell your rental property, seizing the sellers’ market moment of the Australian property sector. The capital gain derived from that transaction is taxable, which means the total taxable income will be higher than normal.
However, if done right, superannuation contributions can help to reduce this payable amount. Before talking about strategy, it is vital to understand the difference between the two types of contributions: concessional and non-concessional.
See below the difference between each contribution type and its tax discounts:
| Concessional Contributions | Non-Concessional Contributions | |
|---|---|---|
| Tax Paid by Superfund when Received the Fund | 15% (or 30% if your adjusted taxable income is more than $250,000) | No Tax |
| Tax Saving by the Entity Making the Contributions | Up to 47% | Nil |
| Annual Contribution Cap for 2022 Financial Year | $27,500 (increased from $25,000) | $110,000 (increased from $100,000) |
We have listed three tax planning strategies for super: Salary Sacrifice, Carried Forward Contributions, and Contributions Splitting.
Strategies
- Salary Sacrifice
Based on before-tax deductions for your salary and wages, the strategy will reduce your taxable income. Furthermore, as the tax rate for a superfund is usually 15%, any individual with a top marginal rate of higher than 15% (i.e., taxable income of higher than $18,200) will benefit from a tax saving by using this strategy.
- Carried Forward Contributions
This measure allows an individual to utilise unused contribution caps for the prior 5 years and claim a tax deduction for an amount above the concessional contribution caps of $27,500. However, you can only access this measure if your total superannuation balance was less than $500,000 on 30 June 2021.
- Contributions Splitting
If your spouse has a taxable income of less than $37,000, you can make concessional contributions on their behalf. As a result, you can receive up to $540 of tax offsets and reduce your tax bill.
Tax Ready with #HoffmanKelly
At Hoffman Kelly, we are dedicated to supporting clients and assisting them to reach their full potential. Read the first article of our series Tax Ready with #HoffmanKelly: Loss Carry Back Tax Offset.
Get personalised tax advice and start planning your strategies before 30 June 2022. Contact us today by calling (07) 3394 2311 or clicking ‘Contact Us’.
