Yahoo Finance Simple tax hack that could save you $540
Reduce your tax bill immediately with this smart strategy.
With the cost of living at an all-time-high, household budgets across the country are stretched to breaking point. So the last thing you and your family need this year is a shocking tax bill. With just over two months until the end of the financial year, it’s time to act now if you want to save money.
The good news is there is one superannuation move which will dramatically, and immediately, slash your tax bill - or even net you a welcome refund. Let me be clear: this move will help secure your future and do it for less, and that should always be the end goal of smart money management.
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Your smartest super move
Now, this strategy is for couples. It’s also for those where one person earns less than another, and it’s ideal where one person is doing fewer hours of paid work because they’re caring for kids or even elderly parents.
The lower earning spouse does not, in fact, have to be earning at all, which makes the technique available for widespread use. And, if you are eligible, your family should use it year after year.
A $3,000 after-tax contribution made by a higher earning spouse into the superannuation of a spouse earning below $40,000 a year, nets the payer a top-notch $540 tax offset. It's quite logically called the spouse contribution.
Why the words ‘top notch’? Because the ‘offset’ is cut straight off the top of your tax bill, unlike a tax deduction which reduces your amount of income before your tax is calculated. Think of it like an instant refund. In this case, it’s an almost-overnight $5,40 discount on $3,000 that you get to keep.
Who gets the full $540 offset?
The $540 spouse contribution offset reduces for those incomes over $37,000 and disappears completely by $40,000. Don’t miss that this is assessable income plus total reportable fringe benefits and reportable employer superannuation contributions. At the full rate, the offset is calculated as 18 per cent of $3,000.
You cannot have first claimed a personal deduction for the contribution. You can also claim the offset only if your spouse had a total superannuation balance at June 30, 2020 of less than $1.6 million.
The ‘spouse’ rules are for the same as under most government definitions: any person of any sex with whom you are in a relationship… not necessarily a marriage, but on a genuine domestic basis.
What other ‘super’ opportunities are there?
Our retirement savings vehicle provides great strategies to tap into when you have a large and/or looming tax bill. Making personal deductible contributions can be even more effective than the above if you’re about to face a slug.
Stay tuned for my next column to find out my other superannuation saver tricks.
Nicole Pedersen-McKinnon is the author of How to Get Mortgage-Free Like Me, available at www.nicolessmartmoney.com. Follow Nicole on Facebook, Twitter and Instagram.
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