A large part of what we do is taking the time to understand the legislation involved in the financials of Australians and figuring out ways for us to use it to the advantage of our clients.
Below are 5 of the legal loopholes that can be taken advantage of to boost your retirement.
1. Concessional contributions
2. Carry-forward concessional contributions
3. Spouse contributions
4. The government co-contribution
5. The tax-free retirement
1. Concessional contributions
- Effectively these are contributions that are made before-tax with a concessional contributions cap of $25,000 each year.
- Employers contribute a minimum of 9.5% of your before-tax income into your super.
- If you earn $100,000 gross p.a. your employer would pay a minimum of $9,500 into your super as a concessional contribution, leaving you with an extra $15,500 to make as a concessional contributions via salary sacrifice OR personal deduction that you claim a deduction on.
- Super fund taxes the contribution at 15% inside of super but saves you income tax at your marginal tax rate. E.g. If you contribute $10,000 into your superannuation as a concessional contribution, 15% ($1,500) will be taxed inside the super but you’ll save 39% ($3,900), depending on your marginal tax rate, in income tax which creates a tax arbitrage of 24%.
- Not only do you receive a large tax saving, but you also have your money invested inside your super that is ready to generate a return.
2. Carry-forward concessional contributions
- Effectively allows you to carry-forward unused concessional contributions from the previous 5 financial years from FY18-19 onwards. FY19-20 was the first financial year that you could use unused concessional contributions.
- This allows you to take advantage of the tax savings that could have been missed in previous years.
- However, to be able to take advantage of this your Total Superannuation Balance has to be below $500,000 at the end of the previous financial year i.e. if you are doing a tax return for FY19-20, you would look at your Total Superannuation Balance at end of FY18-19
3. Spouse contributions
- If the spouse earns less than $37,000 p.a. and their partner contributes $3,000 into their superannuation, the partner will receive a maximum tax offset of $540 (18% of $3,000).
- The tax offset will reduce between $37,000 - $40,000
4. The government co-contribution
- If your total income is equal or less than $38,564 and you make a personal contribution of $1,000 to your super account, you will receive a government co-contribution of $500 into your superannuation.
- If your income is between $38,564 - $53,564 than your entitlement will progressively get smaller.
5. The tax-free retirement
- Once you have met a condition of release you will be able to move money from superannuation into a tax-free superannuation income stream.
- These are commonly known as account-based pensions or allocated pensions (not to be confused with the Centrelink Age Pension).
- Once the money has entered this phase, any income that you draw from this, as well your investment earnings will be completely tax-free, subject to certain terms.
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