Making additional contributions before 30 June is a great way to cut your tax bill while simultaneously boosting your superannuation portfolio.
On the surface, the strategy is simple: make a payment to your superannuation fund before 30 June and claim a tax deduction for that amount.
There are some tricks you should know to ensure you squeeze the most out of any extra contributions.
1. Know your cap
There is an annual cap of $25,000 for concessional contributions for the current financial year ending 30 June 2021. Contributions made by you and your employer count towards this cap.
For example, suppose your employer has made $15,000 in contributions on your behalf. In that case, this leaves $10,000 that you can contribute and claim a tax deduction for, without exceeding the $25,000 cap.
2. Carry forward fun
Provided your total superannuation balance is under $500,000, you can also contribute and claim a tax deduction for any unused contributions from the last two financial years.
For example, if your employer contributions were $15,000 in the 2019 and 2020 financial years and will be $15,000 in 2021, you would have a total of $30,000 in unused contributions available.
To check both your total superannuation balance and how much in concessional contributions you’ve received, login to your myGov account, and you’ll find the details under Super > Information.
3. Don’t get cut-off
For you to claim a tax deduction for additional superannuation contributions, two things need to happen. First, the contribution needs to be physically received by your super fund. This is because many super funds have cut-off dates before 30 June, so pay in advance to ensure it’s received on time.
Second, you need to complete a form to tell your superannuation fund the deposit needs to be treated as a concessional contribution. The form can be downloaded from the ATO: Notice of intent to claim or vary a deduction for personal super contributions.
Importantly, the notice of intent form must be provided to your superannuation fund, and they must acknowledge it before you lodge your personal income tax return. If you plan to move your superannuation to another fund, ensure you submit the notice of intent before triggering a transfer.
4. Double-dip if self-managed
Members of an SMSF have an additional strategy to use that members of other types of superannuation accounts cannot. An SMSF has the flexibility to physically receive a contribution of cash before 30 June but wait until after 1 July to allocate the amount to a member.
You claim the tax deduction when the cash is received by the SMSF; however, it only counts towards your annual contribution cap when allocated to you in the accounts.
The double-dip strategy is excellent where you have a one-off spike in taxable income that is unlikely to be repeated in the next financial year, for example, a significant capital gain. Professional advice should always be sought with this type of strategy.
5. No cash? No worries!
There may be times when you want to make an additional super contribution, but you don’t want to sell investments and be out of the market. A strategy available to SMSF members and members of some super wrap products is an in-specie transfer.
An in-specie transfer involves moving the ownership of shares, stocks, or managed funds from you personally to your superannuation fund. At the time of transfer, the market value is counted as a contribution.
Also, as you effectively sell the investment to your super fund or SMSF, you trigger a capital gains tax event, so choose what assets to transfer wisely and seek advice.
Bonus: Check super insurance
Most industry and retail super funds provide life and total and permanent disability insurance by default unless you opt-out. These insurances pay out to you or your dependents. You can see the premiums being deducted from your super account by reviewing the transactions online or by checking your statements.
The end of financial year is a great time to review the insurances being paid from your super account to ensure they are suitable for you. You may need more or less insurance cover than what’s been provided by your super fund. Not all super policies are the same, so either contact your super fund or speak to a licensed financial adviser for insurance advice specific to you.
Written by Kris Kitto, head of product for SMSF, Stake.