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Aaron Alston

A Superannuation Strategy to Consider that May Save You $$$ Thousands in Tax

Written by Aaron Alston

Salary sacrificing into super is a great way to boost your retirement savings by utilising pre-tax dollars and therefore reducing your taxable income.

Example

John (55) works Full Time and has a salary package of $125 000 p/a plus 11% super.  He is looking for ways to reduce to increase his wealth as he approaches retirement.  John currently has a paid off home, $150 000 in savings and $450 000 in super.  After consulting a financial adviser, the adviser identifies that John has unused concessional contributions available from the previous 5 financial years that he is available to carry forward because his super balance is less than $500 000.  After having discussions with John, the adviser recommends a strategy whereby John salary sacrifices up to his concessional contributions cap (currently $27 500) this financial year and carries forward unused concessional contributions from the previous financial years.

Concessional contributions cap for the 2019-2023 financial years

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Total carry-forward concessional contributions cap – $130 000

Contributions John made into super the previous 5 financial years

2019 – $10 000
2020 – $10 000
2021 – $14 000
2022 – $15 000
2023 – $21 000

Total concessional contributions John made 2019-2023 financial years – $70 000

John

Total carry-forward concessional contributions cap – $130 000

Concessional contributions John made in the 2019-2023 financial years – $70 000

Unused concessional cap available to carry forward ($130 000 – $70 000) – $60 000

Current employer contributions 2024 FY – $13 750 p/a ($125 000 salary x 11% super contributions)

Available concessional contributions 2024 financial year to maximise concessional cap – $13 750 ($27 500 – $13 750)

Total concessional contributions available John can make in 2024 – $73 750 ($60 000 + $13 750)

Strategy

Strategy – With his available savings of $150 000, the adviser recommends John make a $73 750 personal contribution into super ($60 000 catch up contribution + $13 750 contribution to maximise his concessional cap).  John then submits a notice of intent to claim a deduction for the personal contribution he made to his superannuation fund.

As John earns between $45 000 – $120 000 he will pay 34.5 cents (32.5% tax rate + 2% medicare levy) tax for each dollar earned over $45 000.

The tax payable into super at 15% equates to $11 063 ($73 750 x 15%).  He now has reduced his taxable income from $125 000 to $51 250 ($125 000 – $73 750) and therefore saving $25 444 tax ($73 750 x 34.5%) John would incur in his personal name.

Outcome – John saves a whopping $14 381 tax ($25 444 – $11 063).

Summary

If you have unused concessional cap amounts from previous years, you may be able to carry them forward to increase your contribution caps in later years. You’re eligible to do this if you:

  1. have a total super balance of less than $500,000 at 30 June of the previous financial year
  2. have unused concessional contributions cap amounts from up to 5 previous years (but not before 2018–19).
Source: https://www.ato.gov.au/individuals/super/growing-and-keeping-track-of-your-super/caps-limits-and-tax-on-super-contributions/concessional-contributions-cap/#Carryforwardunusedcontributions

If you are unsure if you meet the above criteria, speak to your financial adviser or your tax accountant.

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