Super Strategy

The strategy To get a tax break from super before June 30.

Can I do that? If you're an employee, the chances of boosting your contributions before June 30 are limited as you can only sacrifice future salary entitlements into super.

However, if you are not working and eligible to contribute, or self-employed, you can still make a tax-deductible contribution - so long as it is in your fund by June 30.

If you're under 65 you need to earn less than 10 per cent of your income from employment to claim a tax deduction on your super contributions.

You can still contribute once you turn 65 but you also have to show you have worked 40 hours in a 30-day period during the year.

Whether you're salary sacrificing, or claiming a deduction on your own contribution, there's an immediate tax benefit as super contributions are taxed at 15 per cent versus your marginal income tax rate. For someone on the top marginal tax rate of 46.5 per cent, concessional contributions can leave you almost 60 per cent better off.

To earn $1000 of after-tax income, she says, you'd need pre-tax income of $1870. But if you sacrificed or contributed this amount to super, you'd have $1590 after the contributions tax.

What if I can't sacrifice or make a deductible contribution? T lower- and middle-income earners should try to take advantage of the super co-contribution, in which the government will match your after-tax contribution of up to $1000. That's even more tax-effective than salary sacrificing but to get the full co-contribution you must earn $31,920 or less. The maximum $1000 co-contribution reduces by 3.33¢ for each dollar you earn in excess of this and cuts out completely when your income reaches $61,920.

If you have a low-income or non-working spouse, you can also claim a tax offset for making a contribution to your spouse's account. The maximum offset is $540, or 18 per cent of the maximum $3000 non-concessional contribution, and to be eligible for the full offset your spouse must earn less than $10,800. The offset is phased out and is lost completely once this income reaches $13,800.

Are there other end-of-year super strategies? The couples have until June 30 to split their super. The rules allow you to transfer up to 85 per cent of last year's concessional contributions to your spouse's account.

While that may not generate a tax break now, it could be used to keep the higher earner's super balance below $500,000, so they will qualify for the government's proposed higher contribution cap for people aged 50 or more with less than $500,000 in super.

The splitting helps couples maximise the benefits of transition-to-retirement strategies and qualify for age-pension benefits when they're older. If you're using or considering a transition-to-retirement strategy, it may need reviewing to ensure you meet the minimum pension drawdown requirements and - if you're sacrificing salary back into super - that you remain within the contribution caps.

Another popular strategy that may be affected by the caps is making tax-deductible super contributions to offset capital gains tax. This strategy is often used by people nearing retirement to move assets from outside super into super to generate a tax-free income when they retire.

In simple terms, a super contribution of $50,000 could be used to offset the tax on a $50,000 capital gain - but there are some traps. First, you must be eligible to claim a tax deduction on super contributions. Care must also be taken to stay within the concessional contributions cap.

There is no point contributing past the level where you would have paid 15 per cent or less on the capital gain - the same rate will be paid on your super contribution.

People think that if they have an income of $40,000, they should make a concessional contribution of $40,000, but you pay no tax on the first $6000 of your income and only 15 per cent up to $37,000, though those numbers are affected by things like the low-income tax offset and Medicare levy. You need to be careful not to disadvantage yourself. If you want to put more into super, put it in as a non-concessional contribution.


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