Grow your super and save on tax

THE end of the financial year is just around the corner, so there is still some time left before 30 June to review your superannuation. 

There are affordable ways to boost your retirement nest egg while trimming this year's tax bill.

If you're self-employed it's worth thinking about contributing to your super before 30 June. You can normally claim a tax deduction of up to $25,000 annually for super contributions though there is a bit of paperwork involved.

You need to inform your fund in writing that you intend to claim the contributions on tax, and it's worth the effort as many self-employed workers are underfunded when it comes to retirement savings.

For traditional employees, consider speaking to the boss about having part of your pre-tax wage paid directly into your super fund instead of receiving the money as cash in hand. This strategy is known as 'salary sacrifice' and it can help to reduce today's tax bill.

Super contributions made this way are taxed at 15%, which for many people will be less than their personal marginal tax rate. In this case it means more of your money - 85c in the dollar - goes toward building your retirement savings.

If you are a low income earner making a contribution to your super using after-tax money from your own pocket could make you eligible for a government co-contribution.

If you earn below $31,920 in the current financial year, the government will contribute an extra $500 to your super if you make a contribution of $1,000. The $500 co-contribution slides in value for every dollar you earn over $31,920 up to a cap of $46,920 at which point it's zero.

Making a super contribution on behalf of a low income spouse is another way to save on tax. If your partner earns less than $10,800 in the current financial year, making a $3,000 contribution to their fund can see you receive a tax offset of $540. A partial offset is still available even if your spouse earns up to $13,800 annually.

As part of your end of financial year tax preparations check the value of total contributions into your fund over the last 12 months.  The government imposes strict annual limits on super contributions, and exceeding these thresholds can result in tax penalties.

The current annual limit for pre-tax ("concessional") contributions is $25,000. This cap includes both any salary sacrifice contributions as well as your employer's compulsory contributions. This annual cap is slated to be increased to $35,000, applying to those aged 60 and over from July 1, 2013, and to those aged 50 and over from July 1, 2014.

After-tax contributions are restricted to $150,000 annually, or if you are aged under-65, you can contribute $450,000 in a single year as long as you don't make additional after-tax contributions in the following two years. This type of contribution includes co-contributions and spouse contributions.

If you have any queries about the super strategy that is right for you, speak with your financial adviser. Your accountant can provide details about how tax will apply to any contributions you're planning to make before 30 June.

Paul Clitheroe is a founding director of financial planning firm ipac, chairman of the Australian Government Financial Literacy Board and chief commentator for Money magazine. Visit for more information.

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