Here are some simple but powerful tips to consider when building your retirement savings. Which ones will you add to your to-do list before the end of this financial year?
1. Make personal concessional super contributions
What? Making personal pre-tax or ‘concessional’ contributions could be a great way to boost your super. However, concessional contributions (which also include contributions from your employer) are limited to $25,000 per financial year – and if you go over this cap, you may have to pay extra tax. But if you haven’t reached the cap this financial year, it might be something to consider before 30 June.
Why? For most Australians, concessional contributions attract a tax rate of 15% – as opposed to their marginal tax rate, which may be significantly higher. That’s why these contributions can be an effective way to reduce your tax bill.
2. Receive the Super co-contribution
What? If your annual income is below $36,813 and you’ve made at least $1,000 worth of after-tax contributions to your super this financial year, the government will give your super an additional boost of $500. You may still be eligible for part of this co-contribution even if you earn up to $51,813 for the year, but the amount you’re entitled to reduces once your income exceeds $36,813 or your contribution is less than $1,000.
Why? This initiative encourages Australians to focus on growing their super. Over time, these co-contributions could make a valuable difference to your super balance.
3. Check your eligibility for a low-income Super Tax Offset (LISTO)
What? If your annual income is $37,000 or less, you may be eligible for a Low Income Super Tax Offset (LISTO) of up to $500.
Why? This payment helps low income earners boost their super by effectively refunding the tax that applies to the first $3,333 of your concessional contributions.
4. Sacrifice your surprise earnings
What? It’s not just your regular income that can be salary sacrificed. If you will soon receive a bonus at work this year, you may also ask your employer to put it straight into your super.
Why? Generally, work bonuses are taxed at your usual rate – or higher if the bonus bumps you up to the next tax bracket. But if use this extra money to make a pre-tax super contribution (and as long as you don’t exceed the $25,000 cap that applies to all concessional contributions), you’ll potentially reduce your taxable income and, in turn, your income tax bill. Meanwhile, the amount you salary sacrifice into super is generally taxed at the low rate of 15%.
5. Contribute to your spouse’s super
What? If your spouse earns $37,000 or less a year and is under 65 – or is aged 65 to 69 and satisfies a work test – the first $3,000 you contribute to their super could earn you an 18% tax offset. This offset phases out as your partner’s annual income reaches $40,000.
Why? You could potentially receive a tax offset of up to $540, while helping your partner build their super at the same time.
6. Gather your investment and work-related expenses
What? Your expenses related to producing assessable investment or work income – from uniforms and repair costs to accounting and advice fees – may be tax deductible.
Why? Claiming deductions for your investment and work expenses can help reduce your tax liability. So be sure to collect every receipt and report each expense in your tax return – and don’t forget to include receipts for charitable donations as well.
7. Prepay where you can
What? You may be able to pay up to a year’s worth of interest on an investment loan in advance. In many cases, you may also prepay your income protection insurance premiums for the year ahead.
Why? Income protection premiums and interest charges on investment loans are generally tax-deductible.
8. Plan how you’ll use your tax refund
What? If you’re expecting a tax refund this year, consider using it to invest in your future.
Why? Many of us treat tax refunds as extra spending money. But there are many ways you can use your windfall wisely – from saving it for a home deposit to paying off your non-deductible debts, or simply putting it straight into your super.
Keep your wealth strategy on track.
To discuss these tips and make sure you’re on track this year, speak to your financial adviser. They can make sure you have the right arrangements in place for your personal circumstances and lifestyle goals.