Maximise tax deductible contributions (concessional contributions)
Making tax-deductible contributions can be a tax-effective way to build your superannuation. The concessional cap for the 2020 financial year is $25,000.
Concessional contributions include:
- your employer’s superannuation contribution (the compulsory 9.5%);
- any salary sacrificed contributions; and
- any personal contributions you can claim as a tax deduction.
Ensure these are all taken into account when determining how much space you have left in your concessional cap.
Double-check your salary sacrifice arrangement’s timing so you know when your fund will receive amounts yet to be paid. Note, contributions are deemed to be made in the year the fund receives and processes them. Finally, check that your fund did not receive any of last financial year’s contributions in this financial year.
Consider a “catch up” concessional contribution
The 2020 financial year will be the first year where you can make an extra tax-deductible contribution if you haven’t utilised your concessional cap in the 2019 financial year, and you had less than $500,000 in super as at 1 July 2019.
This might be useful if you pay income tax at more than 32.5% and are wanting to build your super. This case study provides more detail on how this approach can work.
TIP: Do your sums carefully to make sure you accurately calculate your unused cap balances!
Personal super contributions
Most people (employees or self-employed) can make contributions to their super fund and claim a tax deduction in the current financial year.
To do this, you need to allow enough time to ensure your superannuation fund’s bank account has deposited and cleared the contribution by 30 June.
Important points to consider:
- To claim a tax deduction – you will need to complete and lodge a Notice of Intent to Claim the Deduction and have this notice acknowledged (in writing) before the date you lodge your tax return, or the lodgement deadline date – whichever is earlier. The accepted ATO form is here. If the paperwork is not completed, you cannot claim the deduction!
- If your income has dropped during the year, and you have already completed the paperwork to make a personal contribution, you can normally vary it before the due dates by completing the variation section in the ATO form.
- Make sure your personal superannuation contributions don’t create a tax loss, as you will be unable to claim the deduction as a concessional contribution.
- If you are aged between 65 and 75, you must have passed the work test to be able to contribute to super. The work test is met by working a minimum of 40 hours paid employment in a 30-day consecutive period during the financial year.
Consider after-tax (non-concessional) contributions
The general non-concessional cap (NCC) for the 2020 financial year is $100,000. Eligibility to utilise the cap can depend on your total superannuation balance (TSB). Details regarding TSB thresholds are below.
Members aged over 65 will need to meet the work test to make an NCC. The work test is met by working a minimum of 40 hours paid employment in a 30-day consecutive period during the financial year. (Note: laws to extend the age to 67 before the work test becomes relevant have been proposed – however at the time of writing, this is not in place for the 2020 financial year.)
If you are under 65 years of age at any time in the 2020 financial year, you may be able to bring forward three years of NCC, depending on your TSB. This enables up to $300,000 of NCC to be made in one year.
The bring-forward rule is automatically triggered if you make an NCC of more than $100,000 in one year. The total NCCs for the current year and for the next two years must be within the contribution cap of $300,000 total.
Check if you are able to make other contributions
On 1 July 2018, a new type of personal contribution became available. Eligible members can contribute up to $300,000 to superannuation from the sale of their family home. This is regardless of TSB.
Members must be 65 years or older at the time of contribution and have owned the home for a minimum of ten years. The contract for the sale of the home must be after 1 July 2018. Furthermore, the proceeds need to be contributed to superannuation within 90 days of settlement.
This personal contribution will not impact concessional or NCC caps and is a once-only opportunity per member.
Note the home does not have to be your family home at the time of sale. Also, it does not have to have been the family home for the entire ten years – increasing the pool of properties that may be eligible for the contribution.
Do you meet the relevant work tests, are under 71 years of age, have less than $1.6M in super, and earn less than $53,564?
If so, it is also worth considering if you can take advantage of the Government super co-contribution.
The co-contribution is a contribution to your superannuation fund from the government matching after-tax contributions made by a member at up to 50% with an upper government contribution limit of $500.
If your spouse earns less than $40,000 and you make a NCC superannuation contribution for them, you may be able to receive a tax offset of up to $540, depending on your spouse’s TSB.
Split your concessional contributions with your spouse
You can allocate up to 85% of your 2019 FY concessional contributions before 30 June to your spouse’s super if your spouse hasn’t met retirement age. This is an effective way of building super for your spouse and managing your TSB. Click here for details regarding TSB thresholds.
You will need to complete an election to enable one split per financial year using the ATO form