A SUPER way to save tax
I hope you all had a prosperous 2023 Financial Year. At WLM, we spent a lot of time with our clients working on strategies to save tax in the lead up to 30th June.
Did you know that we were able to save clients many thousands of dollars in tax. How?
By using the ‘carry forward’ unused cap rules that were introduced in July 2019. Assuming you earn over $45,000 per annum, for every $1,000 you contribute to super up to the concessional cap, you could receive a tax deduction of $325.
How does it work?
From 1 July 2019, new rules were introduced that allow eligible taxpayers to claim tax deductions for the unused portion of the super concessional contributions caps from prior years.
A concessional contribution is defined as a contribution to your super fund before tax. These contributions are taxed at a flat rate of 15% in your super fund. The tax rate increases to 30% if you earned over $250,000 in that financial year.
The new rules give clients the capacity to look back on each financial year commencing from 1 July 2018 to calculate the ‘unused’ portion of their concessional contributions cap in that financial year. Once calculated, taxpayers can ‘carry forward’ and, if desired, ‘catch up’ and claim the ‘unused’ portion of their concessional contributions caps in a later financial year. Claiming the unused portion of concessional contributions caps in a later financial year can achieve a better tax outcome for that financial year, and maximise the amount contributed to super.
You can only claim unused super contributions from the previous five financial years if your total super balance is less than $500,000 at 30 June in the financial year before the year in which you make your ‘catch up’ contributions. Unfortunately, if you didn’t act in the 2023 Financial Year, the unused cap for the 2019 Financial Year has now disappeared.
What are the benefits of catch up contributions?
Making a catch up contribution is an easy way to boost your super balance while offering significant tax benefits. Please note, it is important to review your cashflow needs as any funds that are contributed into super will need to meet a condition of release to access.
Some examples of when you may make catch up contributions:
- You are liable to pay Capital Gains on the sale of property or shares in a financial year;
- Your cashflow has improved as you have paid off your mortgage or school fees have ceased; or
- You receive an inheritance
Conclusion
Maximising opportunities for contributions is a great way to build wealth for retirement and save tax along the way.
WLM can help
Please contact us if you would like advice or assistance on how to reduce your tax.
