Now is a great time to think about ways to either minimise this year’s tax bill or maximise any tax refund you may be owed.
One way to do this is for you to consider making a one-off, after-tax personal contribution to your superannuation, which you can then claim as a tax deduction on your tax return in 2021.
The 2021 cap on super concessional contributions (tax-deductible contributions) is $25,000, rising to $27,500 from next financial year. This means if you earn less than $250,000 a year are entitled to pay a low tax rate of just 15 percent (in your super fund) on the first $25,000 of money you pay into your super.
If you are on a low-income paying a tax rate of 15 percent or less, there is not much of a benefit. For you, it may be worth looking at your eligibility for the government’s low-income co-contribution scheme. Also, the government’s spouse contributions tax offset, whereby if your spouse is earning less than $37,000 and you contribute $3000 into their super fund, you get a tax offset of $540.
Important considerations before you make the decision.
- Find out if you have already contributed this year, and even in the past three years, so you are not in breach of any caps. Either call your super fund or log into your MyGov account to see what contributions have already been made into your account this financial year.
- The $25,000 cap includes all your employer contributions (including the 9.5 percent compulsory super guarantee) plus any salary sacrifice amounts you have tipped in throughout the year. Make sure to check your contributions across all your super accounts – if you have multiple as the cap applies across all your contributions.
- Once you have done this and know what you have left to contribute, you can contact your super fund to inquire about how to make an after-tax personal contribution.
- Contributions must be received before the end of the financial year to be able to be claimed on this year’s tax return. Some funds have a cut-off date to receive funds of June 25, meaning you need to transfer any money by June 21 to be sure my transfer makes it in time. Your deadline maybe earlier, so check with your fund.
- Before you submit your tax return, you must fill out an official “NOTICE OF INTENT TO CLAIM” form and send it to your super fund. You must also wait to receive a letter of acknowledgment from your fund that it has received this form. You can do this paperwork after June 30, but it must be completed and acknowledged before you submit your tax return.
- When you do file your return, remember to add your contribution under “Personal Superannuation Contributions” and your taxable income is reduced by an equivalent amount.
People with super balances of less than $500,000 are also eligible to take advantage of any unused concessional contributions caps from previous years, stretching back to the 2018-19 financial year. Your MyGov account will tell you how much you have unused.
If you are eligible and have sufficient unused amounts from previous years, you can contribute more than $25,000 a year and the Australian Taxation Office will automatically roll over previous unused amounts to give you full deductibility.
Be careful there can be harsh penalties for getting your sums wrong and breaching the concessional contributions cap.
Please note, this is not financial advice it is information only. It is important to consider your own personal situation, including tax implications and your broader savings strategy, like any investment decision. If in doubt, talk to a financial advisor, accountant, or tax agent.