12 Superannuation tax saving tips to keep more of your money

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12 Superannuation Tax Savings Tips for Australians in 2022

12-Superannuation-Tax-Saving-Tips-to-Keep-More-of-Your-Money

What is superannuation?

Superannuation refers to funds saved aside throughout your working career to support your retirement.

It's many Australians' second-largest asset, after the family house. But the lack of attention given to it is absurd. One of your most valuable possessions needs to be taken care of, so make the time. 

Super Funds can be invested in real estate, shares, term deposits, and managed funds. They also receive substantial tax breaks, complying with super funds and obtaining preferential tax treatment over businesses and people making more than $18,200.

A conforming superannuation fund must pay taxes 15% of its net income and contributions. If contributions are made by those whose income is more than $250,000, they are subject to a 30% tax. When an asset is kept for at least a year, capital gains tax is decreased to 10%.

This article will discuss various strategies for boosting your super and the most tax-efficient ways to access it. 

Superannuation tax saving tips

Superannuation-tax-saving-tips

1. Contribution Limit

Making consistent, sizable donations to the fund over time—and then reaping the rewards of seeing money grow—is the easiest way to increase your super fund balance.

Superannuation Tax Tip:

If your annual income is under $250,000, you can contribute up to $27,500 to super and pay only 15% tax. Even if you don't have access to it right now, the money is yours, and by investing it now, you can increase your net worth faster than by paying up to 47% in taxes.

There are two different ways to contribute to a super fund:

  • Concessional contributions (before tax)
  • Non-concessional contributions (after tax).

Concessional contributions are before-tax contributions because the giver, typically an employer, can claim a tax deduction. Concessional contributions are taxed at 15% (or 30% if the individual earns more than $250,000). 

Concessional contributions are limited to $27,500 annually. They consist of every mandatory super guarantee contribution, every salary sacrifice contribution, and any personal tax deductible contributions that you want to claim.

Risk -

If you have multiple funds, the cap is applied to the total of all concessional contributions made to each fund.

The ATO does not tax non-concessional contributions, which include after-tax personal contributions you make.

Tip:

You may be qualified for the super co-contribution if you earn less than $56,112 and don't claim a tax deduction for any personal contributions you make to super.

The amount of non-concessional contributions you can make each year without incurring additional tax is capped by the ATO at four times the number of concessional contributions, or $110,000. 

Additionally, only those having superannuation balances of less than $1.7 million at the end of the prior fiscal year are eligible for the non-concessional cap. The untaxed plan cap of benefits within a super fund that has not been subject to contributions tax is $1,615,000.

When superannuation balances exceed $1.48 million, the table below shows that the maximum non-concessional cap you can bring forward decreases. When you exceed the non-concessional contribution cap for the first time, the period starts that year.

Total super balance on 30 June of previous year

Non-concessional contributions cap for the first year

Non-concessional contributions cap for the first year

Less than $1.48 million

$330,000

3 years

$1.48 million to less than $1.59 million

$220,000

2 years

$1.59 million to less than $1.7 million

$110,000

No bring-forward period, general non-concessional contributions cap applies

$1.7 million or more

nil

Not applicable

Risk -

Any sum above the cap on concessional contributions is subject to an additional 32% tax, while any sum above the cap on non-concessional contributions is subject to a 47% tax. You are responsible for this tax, but you can access your superfund funds to make the payment with a release authorization from the ATO.

Regardless of income or the reason for the violation, excess concessional payments are included in a person's taxable income and taxed at their marginal tax rate (plus interest). The person can pay the tax bill out of their own funds or use their extra concessional superannuation contribution after taxes. 

The additional income tax resulting from excess concessional contributions included in your income tax return is taxed at an excess contribution charge, which is presently 3.02 per cent.

2. Transfer Balance Cap

Superannuation is one of the most acceptable places to lawfully reduce your tax burden, especially since you don't have to pay taxes on your savings while in retirement.

The transfer balance cap is a cap on how much superannuation can be transferred from your accumulation super account to a tax-free "retirement phase" account; it is currently set at $1. 7 million. It will be rounded down to the nearest $100,000 and linked to CPI.

When calculating this sum, all your account balances are considered. No matter how many accounts you have these funds in, it makes no difference.

Risk -

Retirement account tax-free status is constrained by a $1.7 million transfer balance cap on funds entering the tax-free pension phase. 

Balances may rise above this ceiling dependent on the growth of tax-free income (after minimum withdrawals). Amounts over $1.7 million as of July 1 2021, must either be rolled into an accumulation fund with future earnings subject to a 15% tax rate or taken as a lump sum (eligible to individuals over preservation age).

Go over your transfer balance cap. You might have to pay tax on the notional earnings associated with that excess and convert a portion of your retirement phase income stream into a lump sum accumulation account. 

The tax rate is only 15% on the excess income, and the first $1.7 million in earnings are tax-free, so it's still a desirable concession.

You won't go over your cap if the amount in your retirement phase account eventually increases (via investment gains) to more than $1.7 million. As long as you stay under the cap, you can keep making several transfers into the retirement phase. 

If you have already used up your whole $1.7 million cap space, you cannot top up your retirement phase account if the balance decreases over time.

Only those with a total superannuation balance of less than $1.7 million at the end of the prior fiscal year are eligible for the super co-contribution.

Superannuation Tax Tip:

Some assets that surpass the $1.7 million transfer balance cap must be transferred back into accumulation mode. 

If an SMSF uses the segregation of assets method, moving assets back into accumulation mode could allow the SMSF to keep assets.

These assets might incur a capital gains tax liability in pension mode while transferring assets that are unlikely to incur a capital gains tax liability or will produce lower income (cash and fixed interest investments) into accumulation mode.

With a $1.7 million transfer balance cap on superannuation, it is possible to divide contributions between spouses so that each one maximizes their individual $1.7 million thresholds (a total of $3.4 million) before retiring.

3. Downsizer Contribution

Over the past ten years, the government has restricted the number of methods people can invest in super, from lowering the concessional and non-concessional quotas to enacting the transfer balance limitation. 

The 2017-18 federal budget reversed this trend by allowing senior Australians to contribute some or all of the proceeds from the sale of their own home towards superannuation without influencing pre-existing concessional or non-concessional restrictions.

Although this is called a 'downsizer' contribution, neither 'downsizing' nor buying a new property is required.

Your downsizer contribution will not count toward your contribution caps because it is not a non-concessional contribution. You can still make the downsizer contribution even if your overall super balance is higher than $1.7 million.

Even if you and your spouse were the only owners of the home sold, provided they met all of the other criteria given above, your spouse may also make a downsizer contribution of up to $300,000.

The downsizer contribution will count toward your transfer balance cap, but your overall super balance won't be updated until June 30 at the end of the fiscal year; it's crucial to remember. 

Even though a downsizer contribution must be given within 90 days of receiving the sale profits, the ATO will let you apply for a longer term if necessary due to unavoidable circumstances. 

Due to illness, a death in the family, or a move, the request should be submitted within the first 90 days of eligibility. It is possible to make several downsizer contributions, but they must all originate from a single sale's earnings, and the sum of all your donations cannot be greater than $300,000. 

Alternatively, the sale's total proceeds are less than any of your spouse contributions.

Your superannuation fund must have received a downsizer contribution into super form by making your contribution. If the ATO later decides your downsizer donation was ineligible, it may impose false and misleading penalties. 

Your superannuation fund will need to determine whether your payment might have been made as a personal contribution after receiving notification from the ATO in this case. 

It will count toward the applicable contributions cap if it might be considered a personal contribution. Your super fund will need to return your contribution if they cannot accept it.

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4. Compulsory employer contributions

When employed, your employer must pay SG (superannuation guarantee) contributions into a conforming super fund. Since 1992, when SG became mandatory, Australians' superannuation savings have soared.

Your company contributes 10% of your ordinary earnings to the maximum contribution base every quarter. Payments count toward your concessional maximum. 

You can choose the conforming super fund this super is paid into.

If you are 18 years or older and make $450 or more before monthly taxes, you are only eligible to have SG contributions made on your behalf by your employer. 

It makes no difference if you are simply a temporary resident of Australia or have a full-time or casual job arrangement.

For super payments to be made on your behalf, if you are under 18, you must work more than 30 hours per week.

Contractors who are paid exclusively or primarily for their labour are regarded as workers for SG purposes and are subject to the requirement to have 10% SG payments paid on their behalf as employees.

Any SG contributions due from employees are calculated using their regular hourly wages. They typically consist of allowances, bonuses, commissions, and any over-award payments and represent what you make during your regular working hours.

Superannuation Tax Tip:

The first step is to double-check with your employer if you are concerned that they are not contributing the appropriate amount of super to your fund. If your question isn't answered, you can contact the ATO, who will look into your employer's business practices in more detail.

Your non-concessional contributions cap for a financial year does not apply to superannuation contributions made with personal injury settlement money.

5. Division 293 Tax

Over the years, there has been a strong incentive for taxpayers paying the highest marginal tax rate of 47 per cent to contribute as much money as they can to their superannuation accounts in order to pay taxes at the more lenient concessional tax rate of 15 per cent, effectively locking in a 32 per cent tax break on any contributions. 

The recent addition of Division 293 to the Tax Act reduced this advantage but not complete elimination.

The Division 293 tax is an additional tax on super contributions that lowers the tax break for people whose total combined contributions and adjusted taxable income are above the $250 000 Division 293 level.

An additional 15% (essentially 30% overall) of a person's taxable contributions made during the fiscal year in which they exceeded the $250,000 cap is subject to Division 293 tax. If you did not make any taxable contributions throughout the year, there is no Division 293 tax to pay.

Risk -

Even though your income may not typically exceed $250,000, some circumstances, such as qualifying termination payments and capital gains, can push it beyond this threshold for a given year. In these circumstances, you will be responsible for paying an additional 15% Division 293 tax on your super contributions for that year.

Superannuation Tax Tip:

Only your annual concessional contributions are subject to Division 293 tax. Non-concessional donations are not taxable, but any earnings are subject to the usual 15% concessional tax rate.

Once they have compared your tax return with the information your super fund has provided them regarding contributions made, if you are over the income threshold, the ATO will typically issue a Division 293 notice several months after the end of the financial year. 

Instead of spending your own money to pay the balance due, you can choose to have money withdrawn from your super fund.

6. Super Co-contribution

The phrase "super co-contribution" should be renamed "free money" instead! However, it is incredible how few individuals use this fantastic opportunity.

A super co-contribution government programme has been in place since 2005 to aid low- and middle-income employees in increasing their superannuation accounts. 

You can benefit from the super co-contribution payment if your annual income is less than $56,112 by contributing a maximum of $1000 in personal super to your super fund. Then, up to an additional $500, the government will match by 50%.

Only those having a total superannuation balance less than the transfer balance ceiling of $1,700,000 at the end of the prior fiscal year are eligible for the super co-contribution. Additionally, it is not available if your annual non-concessional contribution cap has already been met.

You only need to make real personal super contributions to your super fund and file your income tax return if you are eligible for the co-contribution. 

There isn't a separate application or paperwork to fill out. The individual's superannuation contribution must be made to a super compliant fund and may not have been deducted from income for tax purposes. 

You must meet the two income requirements listed by the ATO to qualify for the super co-contribution:

Super-Co-contribution

The income threshold test.

According to the ATO, the government will match your $1000 post-tax contribution to your super fund with an additional $500 if your total income is less than $41,112 per year.

The super co-contribution gradually phases out to zero at the higher income threshold of $56,112.

Example:

Luke is an employee whose superannuation contributions, reported fringe benefits, and assessable income total $43,000. He makes a $3000 personal super contributions to his super fund in the fiscal year 2022–2023.

The government will provide Luke with a co-contribution of $437, calculated as follows:

$500 - (($43000 - $41112) X $0.03333]

The 10% eligible income test.

According to the ATO, at least 10% of your total income must be derived from employment-related activities or business operations to qualify for the co-contribution.

You are not eligible for a super co-contribution for any personal payments that you have chosen to make and that have been accepted as a tax deduction.

7. Transferring foreign super

Many Australians have taken advantage of international super funds to accumulate retirement benefits while working abroad.

You might be permitted to transfer money from a foreign super fund to either an Australian super fund that complies with the criteria or to yourself, depending on the restrictions of your foreign super fund.

The following prerequisites must be satisfied before your Australian super fund will accept any transfers of international super funds:

Age

If you are under 67, contributions can still be accepted (apart from SG contributions, which have no age restriction). The "work test" must be passed by individuals between the ages of 67 and 74.

TFN

Your super fund has your TFN on file.

Maximum contribution

The transfer stays within your fund's contribution cap. Depending on your superannuation amount, you might be able to move forward three years of the cap if you are under 65.

Example:

John, 71, sends his $248,000 super interest from France to Australia. He passed the work test and has contributed $320,000 in non-concessionary contributions to Australian funds throughout his lifetime. 

He must return the extra $138,000 to his French super fund because he is over 65 and cannot contribute more than the initial $110,000 (which would bring him to the annual non-concessional contribution limit).

If he continues to pass the work test, he may contribute more in the years to come.

A foreign fund transfer's "applicable fund earnings" portion is subject to income tax. These profits have accumulated on your super international balance solely since you moved to Australia.

If you move your foreign super to Australia within six months of becoming an Australian resident, none of it will be considered eligible fund profits.

Superannuation Tip:

Your fund will pay the tax on the amount at a rate of 15%, which may be less than the marginal rate of tax that you must pay if you choose to include some of your applicable fund profits in your super fund's assessable income rather than your own.

8. Self-managed retirement funds

As the name implies, a self-managed super fund (SMSF) is a sort of super fund that the members manage for their benefit. As member balances grow and individuals get more experience managing their retirement funds, SMSFs are becoming more and more popular.

The $259 annual SMSF charge is paid to the ATO in advance.

Setting up an SMSF may be an option for you to consider for your retirement if you have the time and expertise to commit to managing your investments, including advisers you can call on.

Superannuation Tip:

Consider your risk profile when determining the minimum balance to start your SMSF. Administration expenses might offset the advantages of running it yourself and vary depending on the investment strategy.

An SMSF has several advantages, including:

  • Choosing where and how to invest your superannuation funds at will
  • Tax advantages
  • Economics of scale: When a family's (up to four) superannuation accounts are combined, the result may be more than the sum of its parts.
  • Possibility of investing in direct share portfolios, which might result in dividend imputation credits that assist lower the overall tax that the fund must pay.
  • The capacity to invest in commercial real estate
  • Rates for deductible life insurance

While SMSFs might be beneficial, not everyone should use them. You should give some of the following considerations significant thought before you establish one:

  • Administrative responsibilities. These could be burdensome, including
    • arranging for your investment to be audited each year
    • maintaining accurate records
    • reporting on the fund's operations to the ATO.
  • A yearly fee - For an average-sized fund, fees for administration, accounting, tax preparation, and audit can cost between $2,000 and $6,000.
  • Adherence - Being an SMSF trustee entails knowing the criteria because you make sure the fund complies with its trust deed and applicable superannuation regulations.
  • Administration - You must manage the fund's investments in the best interests of fund members, which includes ensuring they are only used to provide retirement benefits and keeping them apart from fund members' personal and professional affairs.

An SMSF may pay a financial penalty by being taxed at the regular rate of 45% rather than the concessional rate if it loses its compliant status due to breaking the laws and regulations.

9. Property purchase within SMSF

Many claim they don't trust super and would invest in real estate to pay for retirement. However, more and more people are becoming aware that they can utilize their SMSF funds to purchase real estate.

Superannuation Tip:

Within your super fund, make an investment property purchase. When you can buy a property for only 15% down, please don't pay for it with post-tax money, which can be as high as 47%. Additionally, paying 10% or even no tax on capital gains is preferable to paying 23.5%.

Superfunds are increasingly favoring the asset class of real estate. It is partly because of the favorable tax rates, but because super fund balances increase over time, buying a home through an SMSF becomes easier. Superannuation is a safe vehicle for asset protection because it is typically safeguarded from "creditors and predators."

Until the age of 60, any SMSF members who get pension income are subject to a reduced tax rate; beyond that, the income is tax-free for them. There is a sense of utopia while living in one of the best countries in the world with potentially no taxes to pay in retirement.

An SMSF may purchase any property from unrelated parties. Still, it may only do so from connected entities and people if it is commercial property and will be utilized solely and exclusively for one or more enterprises. Your SMSF should have a defined investment plan permitting real estate ownership.

It would help if you typically took on more risk to increase your return on super. However, your investment approach must coincide with your risk tolerance. Don't go after profits that seem too good to be true because they might be. 

Always keep in mind that 5% of something is always preferable to 50% of nothing. First, conduct research. Don't take needless chances if you have enough money in your super to cover five retirements. 

If the declines, a hazardous plan will only upset the cautious investor. It is highly advised that you speak with a financial advisor. 

Before buying real property in an SMSF, there are a few things to consider.

  • Possessing a home. You cannot use the property that belongs to your SMSF as a private residence.
  • Related commercial leases. A linked company entity may rent commercial buildings only if a documented lease exists.
  • Costs. Having a property will increase the initial and annual costs of managing an SMSF.
  • Funds. You need to have enough money in your fund to buy the house.
  • Lending. You might consider having your SMSF borrow some of the money needed to buy the home.
  • Diversification. You could wonder if the assets in your superfund are sufficiently diversified.
  • Liquidation. You might consider the asset liquidation needed if a member retires or passes away.

10. Materializing a super fund

Given the dangers, not everyone is a good candidate for a super fund gearing plan. An SMSF can purchase a portion of an asset outright and borrow the balance using an installment warrant. 

The asset is kept in trust while the debt is owed, but the SMSF retains its beneficial interest. Through the payment of installments, the SMSF will have the option but not the responsibility to acquire ownership of the asset legally.

The dividends that an SMSF earns while purchasing a portfolio of shares through an installment warrant are often used to reduce the loan. Additionally, the SMSF is allowed to buy real estate through installment warrants.

Example:

John has $400,000 in cash in his retirement account. His super fund uses an installment warrant to borrow a further $200,000 to purchase a $600,000 house. Bob's rental income and super contributions will pay off the loan. The fund can deduct interest payments from its taxes.

Superannuation Tip:

Take out a loan from your super fund to buy a share portfolio. The super fund's interest payments will be tax-deductible and reduce any dividend income.

Franking credits may be applied to other fund earnings. Additionally, depending on the final sale of the portfolio, there may not be any capital gains tax.

Only properly structured purchases allow SMSFs to borrow money, but because of banks' increased comfort with lending to SMSFs, this form of borrowing is less complicated than it was a few years ago.

However, it should be highlighted that over the past year, several of Australia's leading banks have stopped financing new purchases made by SMSFs.

The member's total superannuation and $1.7 million transfer balance cap estimates incorporate limited recourse borrowing agreements.

Any net return analysis must consider that interest rates associated with gearing within super are typically higher than standard home loan interest rates. Additionally, the banks will require more time to arrange financing for an SMSF, so get your permission before you make any real estate transactions.

Superfunds may gear up to 75% (depending on the borrower's constraints), but you should consider dropping asset values and cap borrowing limits at 50%.

11. Transition to Retirement

Some people adore their jobs and have no plans to stop working. Others want to work fewer hours but depend on the money to get by.

Most people believe that for your super to be released, you must either retire or quit your work. However, according to the transition to retirement (TtR) laws, you are allowed to take regular withdrawals from your super to supplement your income.

You can access your super before retiring once you reach your preservation age, but only as a non-commutable income stream and not as a lump payment. As a result, once you reach age 58, you can reduce your working hours without losing your job or income.

You can also use a regular income stream from your superannuation accounts to supplement your income if you'd like.

Superannuation Tip:

Suppose you start a TtR and are 65 years of age or older; salary sacrifice any extra money back into your superannuation. As a result, you will save some tax along the way and increase the benefits you can assemble for your retirement fund.

If correctly set up, your daily income might essentially stay the same. But you can dramatically raise your superannuation retirement savings.

According to the TtR guidelines, the sole restriction on the annual amount of super benefits that may be withdrawn must be at least 4% but not more than 10% of the member's account balance at the beginning of the income year.

Like all other revenue streams, TtR income streams are subject to taxation. The taxable portion of your income stream will be taxed at your marginal tax rate if you have achieved your preservation age but are younger than 60. 

In this case, no tax offset is available, and the fund's earnings will be subject to a 15% tax rate. Any income from a taxable super fund after age 65 will be tax-free if you have not yet retired.

TtR arrangements can be challenging to set up and manage; thus, you should consult with an expert before deciding if this is the correct option for you.

Age Range

Default Minimum Pension Factor

Reduced Minimum Pension Factor for 2019-20, 2020-21 & 2021-22 Fys

Under 65

4%

2%

65 - 74

5%

2.5%

75 - 79

6%

3%

80 - 84

7%

3.5%

85 - 89

9%

4.5%

90 - 94

11%

5.5%

95 or more

14%

7%

You must pass the income and asset requirements to be eligible for the Age Pension.

Pensions-Based-on-Accounts

Income tests

Senior Australians may be eligible for the full age pension if their income is less than $178 per fortnight for a single person or $316 per fortnight for a pair.

Income from financial investments is calculated using deeming rather than actuals. For the first $53,000 in financial assets possessed by a person or the first $88,000 by a couple, the deeming rate is currently 0.25 per cent. The deemed rate of return is 2.25 per cent above these thresholds.

Assets Test

Single homeowners must have assets worth no more than $268,000; for couples, it must be no more than $401,500. For non-homeowners, these thresholds rise by $214,500 ($482,500 for singles and $616,000 for couples).

FAQs

What is contribution tax on super?

Your contributions to super are taxed at a rate of 15%, which is deducted from your contribution before it's invested. For example, if you contribute $100 to your super, only $85 will be invested. The reason for the tax is to help pay for the age pension. If you're earning more than $250,000 per year, your contributions will be taxed at a rate of 30%. This means that for every dollar you contribute, only 70 cents will be invested. Higher earners also have to pay an additional Medicare levy of 2%.

Is it worth contributing to super after tax?

There is no one-size-fits-all answer to this question, as the timing of when you should access your superannuation will vary depending on your personal financial situation. However, in general, you should access your superannuation as early as possible in order to take advantage of the lower tax rates that apply to superannuation income.

When should you access your super to pay less tax?

It's a common misconception that you should only access your superannuation when you retire. In fact, there are a number of reasons why you might want to access your super sooner rather than later – and one of them is to reduce your tax bill. There are a few ways to access your super early, and each has its own set of tax implications. For example, if you're considering leaving your job and accessing your super as a lump sum, you'll need to be aware that any money you withdraw will be taxed at 15%. However, if you're over 60 years old, you can generally withdraw up to $175,000 from your super without having to pay any tax on it.

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