HOW CAN YOU BOOST YOUR BALANCE
For most Australians nearing retirement, the average super balance is not holding anywhere near enough for a “comfortable” retirement. Superannuation management is not something many people think of until they are already approaching their twilight years. However, end of the financial year is a time when most of us start paying more attention to our finances, financial strategies and research options for improving out financial standing.
Some people might treat this time of year as a hall pass, to splurge and buy those big ticket items they wouldn’t otherwise give themselves permission to buy. However the EOFY buying frenzy is a bit of a fallacy, if you want to reduce the taxes you pay while making sure your money goes to good use then why buy depreciating assets and non-capital generating items? Instead, there could be an opportunity to reduce the tax you pay and boost your super at the same time.
#1 Boost your super and reduce tax before June 30
Provided you haven’t maxed out your super contribution cap for this financial year you can still make contributions to your super from your after tax income. So what is the significance of this? Well, if you invested in the same investment class outside of your super any earnings would be taxed at your marginal tax rate, which could be as high at 49% (including the Medicare levy). If you invest in that same class within your super, your tax is capped at a maximum of 15%. If you are self-employed your super contributions could be tax deductable within this financial year. If you do intend to deduct your super contributions, make sure to give your super fund a tax deduction notice ahead of lodging your return.
#2 – Make a long term difference to your savings by setting up a salary sacrifice
Salary sacrifice, where part of your regular income is paid straight into your super fund, is a simple and effective way to boost your super nest egg and could make a difference to your lifestyle when you stop work permanently. You could also end up paying less tax as salary sacrificed contributions are taxed at a maximum rate of 15%, instead of your marginal tax rate.
Talk to your employer about establishing a salary sacrifice arrangement. Just bear in mind, you can only salary sacrifice future income, so you may need to act soon to set up an arrangement for next financial year.
#3 – Accessing the government co-contribution
If you earn less than $49,488 pa, any contributions to super made out of your after-tax money could be matched by 50%, up to a maximum of $500, by the government. It could be an easy way to boost your super if you’re eligible.
If you make a personal (after-tax) contribution to super before 30 June 2015 and earn less than $34,488 for the 2014/15 financial year you could be eligible to receive the maximum government co-contribution of $500. Smaller co-contributions may be available if you earn up to $49,488.
#5 – Top up your spouse’s super
If you make an after-tax contribution of up to $3,000 to your spouse’s super by 30 June 2015, you could receive a tax offset of up to $540 if their income is less than $13,800 for the 2014/15 financial year.
#6 Prepaying income protection premiums could reduce this year’s tax
Protecting your income is important as it ensures you can maintain your quality of life and provide support for your loved ones if you are unable to work at your full capacity due to sickness or injury. Income Protection can provide a regular monthly benefit to cover mortgage payments and other expenses while you recover. Typically, Income Protection can replace up to 80% of your monthly income.
If you have or are considering income protection insurance, you can prepay your premiums for up to 12 months. This may allow you to bring forward a tax deduction from the following year into the current year – potentially reducing your taxable income this financial year.
This communication has been prepared on a general advice basis only. The information has not been prepared to take into account your specific objectives, needs and financial situation. The information may not be appropriate to your individual needs and you should seek advice from your financial adviser before making any investment decisions.