Want more money this tax season?

There are two great certainties in life. Death and taxes. Why do I bring up that depressing fact? Well, it’s June and we are rapidly approaching the end of the financial year. But, while not everyone will be able to count on a tax return in their favour, that doesn’t mean it’s time to bury your head in the sand. What if there was a way the end of financial year could add to your wealth?

I spoke to Pitcher Partners’ Charlie Viola and Centaur Financial Services’ Hugh Robertson and it turns out, there is. 

Super contributions – one of the financial world’s best-kept secrets (largely because much of the populace hears ‘super’ and thinks *yawn*).

Why? 

Well, making contributions not only means more money in your pocket come retirement, but it also has tax implications in the here and now. For some, it may even be a benefit to your tax statement.

With only a few weeks left to 30 June, you’ll need to get onto it, so without further ado, here’s what you need to know.

Contributions and end of financial year

As a refresher, there are two types of contributions you can make to your superannuation – concessional (pre-tax) contributions and non-concessional (post-tax) contributions. Each have different caps and applicable tax rates. You can read the complete download at ato.gov.au.

Concessional contributions – any payments made to your superannuation from your salary before tax. This includes Superannuation Guarantee payments (aka the 11% that your employer pays on your behalf). A 15% tax applies to these contributions, rather than your marginal tax rate, unless you earn over $250,000 per annum where an additional 15% tax may apply. The maximum you can contribute as a concessional contribution for the 2023/2024 financial year is $27,500.

Non-concessional contributions – any payments made to your superannuation from your salary after you have paid tax. To make these contributions, your total superannuation balance needs to be below $1.9 million (also known as the general transfer balance cap). The maximum you can contribute as a non-concessional contribution for the 2023/2024 financial year is $110,000. You can also ‘bring forward’ non-concessional contributions, rolling together three years’ worth of contributions which would allow you to contribute up to $330,000 – but you should note that caps are increasing next year so you may wish to hold off.

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More money for living the retirement dream? Here’s what you need to know

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Why should you care?

For many Australians, this could be an opportunity to grow your super and reduce your taxable income.

“For example, if an individual received $17,500 in employer ‘super guarantee’ contributions throughout the financial year, there is the opportunity to make an additional tax-deductible contribution of $10k (up to the $27,500 cap),” says Viola.

Lower income earners may also want to consider strategies like the government co-contribution and spouse contribution to support their needs. More on this later.

For higher income earners, Robertson notes, “making concessional contributions may provide a greater tax benefit before the stage 3 tax cuts start from July 1.” For anyone in this bracket, he cautions checking whether they have already exceeded this year’s cap, and if so, consider whether they can use previous years’ cap spaces.

It’s worth highlighting the ability to use the previous years’ caps may apply to anyone regardless of tax brackets but depends on your total super balance. If you have a balance under $500,000 as at 30 June 2023, you can ‘carry-forward’ unused concessional contributions from the last five financial years.

“This can be an effective strategy for those that experienced a significant capital gain in the financial year. There is complexity, so seek advice to ensure it applies correctly to your personal circumstances,” Viola says.

The below table from Robertson is an example of the potential tax implications of contributions:

A few extra things of note for lower income earners

Robertson notes that strategies for lower income earners is one of the biggest missed opportunities and there are a couple of things to consider. Don’t stop reading if you are a higher income earner, after all, you may have someone in your life that this will benefit.

1. Government co-contribution: Those who earn under $43,445 and are less than 71 years old at 30 June may be eligible for a government co-contribution of up to $500 if they make a non-concessional contribution of $1,000 (and don’t claim it as a tax deduction).
2. Spouse contributions: “If your spouse earns $37,000 or less, you can make up to a $3,000 contribution to their superannuation and claim a 18% tax offset for it. "It shades out from $37,001 and phases out at $40,000,” says Robertson.
3. The Low Income Superannuation Tax Offset (LISTO): “Those earning up to $37,000 can have the 15% contributions tax on their employer ‘Superannuation Guarantee’ contributions refunded to their super balance,” says Viola.

You can find the complete details on the ATO website.

Common mistakes to avoid

Both Robertson and Viola point to making contributions too late as the biggest mistake investors tend to make.

“Some funds require contributions to be made at least one week before the end of the financial year to ensure these are received and allocated to members correctly. Otherwise, they could miss the cut-off for the financial year and therefore, impact tax outcomes and contribution caps,” says Viola.

Two other mistakes Robertson points to include:

• Not understanding how much you can put in each year – aka know your caps and what you have already contributed. Don’t exceed your caps!
• Not realising you have the ability to ‘carry forward’ concessional contributions from previous years.

Some other tips to keep in mind

Contributions may not automatically be the best option for you. For example, Viola notes younger investors who may want to save for property or other assets should remember that they can’t access their superannuation until 60 at the earliest and other options may be more suitable.

Also remember that stage 3 tax cuts start from 1 July – and contribution caps are increasing too.

“Automate that additional cash flow from the stage 3 tax cuts and put it into super to build long-term wealth,” says Robertson.

As we head into the pointy end of the financial year, both suggest investors hold larger gains for the next financial year and consider prepaying expenses for the next 12 months to bring forward a tax deduction for this financial year could be valuable.

Your biggest asset

“Be proactive with your superannuation. For the majority of people in Australia, it is their second biggest asset outside of their home,” says Robertson.

A little tip of my own? 

Super sounds a lot less boring and a lot easier to plan for when you think about what you want to spend it on one day beyond the basics… Get to it!