Tag Archives: Superannuation Contributions
Five things you and your partner should know about super
By Robert Wright /July 30,2021/
Money issues are often cited as the biggest causes of stress in a relationship. Yet despite their importance, a recent survey of Australian couples found that 43% hadn’t discussed how they’d share their incomes before they committed. And close to a third hadn’t talked about their financial situation with their potential partner at all.
Even if you and your partner manage your day-to-day finances well, have you considered the impact your relationship has on your retirement savings? Here are five things that every couple should know about super.
1. Understand how super rules apply to you as a couple
When it comes to super, you have the same rights regardless of whether you’re married, in a de facto relationship or in a civil partnership.
This means if your partner passes away, you could be entitled to receive their super – and potentially any life insurance in their super account. What’s more, if your relationship breaks down you could either receive some of their super or need to pay some out to your partner.
In a relationship breakdown, super is considered property by the courts for married couples and those in de facto or civil partnerships. And like other assets, it can be divided between the two people. You can agree to split your super, or the court can order you to do so. Alternatively, you can choose to split your other assets but leave your super benefits untouched. In some cases, you can put off your decision until later on – say, in retirement.
Remember, if you do split your super with your former partner, neither of you can access this money until you reach preservation age or meet another condition for early release of super.
2. Work out how much you need for retirement
As a rule of thumb, couples have the better deal when it comes to saving for retirement because they can pool their resources. If you own your home and are in good health, the Association of Superannuation Funds of Australia estimates that you’ll need an annual income of $40,739 for a modest lifestyle in retirement or $62,562 for a comfortable one. By comparison, a single person may need $28,179 or $44,224 respectively. So if you’re part of a couple, it may be easier for you and your partner to reach your retirement goals.
But of course, your situation will differ from other couples. You may have complex health needs, or still have a mortgage by the time you retire. Maybe you don’t own a home – or perhaps you’ll still have financial dependants after you’ve finished working. Whatever your situation, it’s important to discuss with your partner the kind of lifestyle you want in retirement – and how much super you’ll need to support it.
3. Find out if you’d benefit from spouse super contributions
If you’re a high earner and your spouse earns $40,000 or less a year, you could both potentially benefit from the spouse contribution strategy.
Here’s how it works: you make an after-tax contribution of at least $3,000 into your spouse’s super. If your spouse earns $37,000 or less, you could then earn a tax offset of $540 – and your spouse gets a welcome boost to their super. You may still receive a partial offset if your spouse earns up to $40,000.
4. Consider splitting your super
Did you know that couples can split up to 85% of their Super Guarantee (SG) contributions each year – plus any salary sacrifice and personal super contributions you might make? To do this, your spouse must be under preservation age and not retired, and you must split your contributions at the end of financial year in which they were made.
Splitting super could benefit you as a couple if one of you has substantially more super than the other, and where:
- There is an age difference: The older spouse can reduce their super balance by splitting it with the younger spouse, and then they may be entitled to a part Age Pension when they retire.
- You want to withdraw large lump sums in retirement: Currently, lump sum withdrawals are capped at $215,000 (that’s set to increase to $225,000 for 2021-22). But if you split your super, you could potentially both withdraw up to $430,000 tax-free (or $450,000 from 1 July 2021).
- You want to avoid going over the $1.6 million super cap: While you can have more than $1.6 million in your super account, you can only transfer a maximum of $1.6 million into a tax-free pension account. The transfer balance cap will be indexed and increased to $1.7 million from 1 July 2021.
5. Decide if you want to nominate your partner or spouse as a beneficiary to your super
You can decide who you want to nominate as a beneficiary for your super. You might want to nominate your spouse – but you don’t have to. Instead, you could choose someone else who is considered your dependant. For example, a child (including an adopted child or stepchild) or someone who is financially dependent on you.
One strategy is to leave your spouse the family home so they can continue living there – and then leave your super to your children. Or, if you’re a business owner, you could potentially leave the business to your spouse to continue running it and leave your super to your children. A financial adviser can help you work out what approach is most appropriate for your financial situation.
Whoever you decide to leave your super to, it’s a good idea to set up a binding death benefit nomination so you have more certainty about how your super will be paid out if something happens to you.
Source: Colonial First State
Salary sacrificing into super – how it works
By Robert Wright /July 30,2021/
Salary sacrificing into super is where you choose to have some of your before-tax income paid into your super account by your employer. This is on top of what your employer might pay you under the super guarantee, which is no less than 10% of your earnings, if you’re eligible.
Making salary sacrifice contributions does involve a reduction in your take-home pay, but it also means you could increase your retirement savings while also potentially reducing what you pay in tax. If you’re thinking about setting up a salary sacrifice arrangement, here are some things to consider.
What can I contribute?
You decide how much you want to contribute (as long as you don’t exceed super cap limits) and whether it’s a one-off payment, or something you can afford to do regularly.
How much I can contribute?
You can’t contribute more than $27,500 per year under the concessional super contributions cap or penalties will apply. It’s also important to note that contributions made into your super as part of a salary sacrifice arrangement are not the only contributions that count toward this cap.
Other contributions that count toward your concessional contributions cap typically include:
- Compulsory contributions your employer pays under the super guarantee, including contributions from any other jobs you may have held in the same financial year ·
- Contributions you make using after-tax dollars which you choose to claim a tax deduction for.
What are the potential tax benefits?
If you choose to reduce your before-tax income by salary sacrificing into super, a potential benefit is you may be able to reduce what you pay in income tax for the financial year.
That’s because contributions made via a salary sacrifice arrangement are only taxed at 15% if you earn under $250,000 a year, or 30% if you earn $250,000 or more a year, with most people generally paying more tax on their income than they do on salary sacrifice contributions.
There could also be further tax benefits as investment earnings made inside the super environment also benefit from an equivalent tax saving, which could make a difference when you do eventually withdraw your super savings and retire.
How do I set up a salary sacrifice arrangement?
If salary sacrificing into super is right for you, here’s a quick checklist for how you could set this up.
Make sure your employer offers salary sacrifice
You will need to confirm with your payroll team at work that your employer offers this type of arrangement. If not, you may be able to achieve broadly the same benefits by claiming a tax deduction on contributions you may choose to make using after-tax dollars, but you’ll need to consider whether this is right for you.
Decide how much you want to salary sacrifice, how often and when
You might want to salary sacrifice on an ongoing basis, or as a one-off. Also, you can’t salary sacrifice income that you’ve already received, such as a bonus or leave entitlements, so you’ll need to act well before this money is paid into your regular bank account if you want to salary sacrifice it.
Notify your employer and get any agreement in writing
If you can salary sacrifice (and you know how much, how often and when you want to do it), contact your payroll team at work to find out what information they need. Ask them to confirm in writing when your contributions will start being paid, so you can check that the contributions are being received into your super account.
Make sure you don’t exceed the concessional contributions cap
It’s also worth noting that in addition to your annual cap, you may also be able to contribute unused cap amounts accrued since 1 July 2018, if you’re eligible. This broadly applies to people whose total super balance was less than $500,000 on 30 June of the previous financial year.
Are there any other things I should be aware of?
The value of your investment in super can go up and down. Before making extra contributions, make sure you understand and are comfortable with any potential risks.
The government sets rules about when you can access your super. Generally, you can access it when you’ve reached your preservation age (which will be between the ages of 55 and 60 depending on when you were born) and you retire.
Source: AMP
Good news – Super contribution caps to rise
By Robert Wright /June 11,2021/
On 1 July 2021, both the concessional and non-concessional superannuation contribution limits, also known as ‘super contribution caps’, will rise.
This is good news because this is the first time these limits have changed since 1 July 2017, when the concessional contributions cap was reduced to $25,000 pa for the 2017/2018 financial year and onwards.
Since that time, the non-concessional contribution cap hasn’t changed either, currently $100,000 pa.
What are Concessional contributions?
These are super contributions made by your employer, from your pre-tax income (salary sacrifice contribution) or contributions for which you claim a tax deduction. They are generally taxed at only 15 per cent instead of your marginal tax rate.
What are Non-concessional contributions?
These are super contributions made from your after-tax income. Since you’ve already paid income tax on these contributions, they are tax-free going into your super.
Due to indexation of Australians’ average weekly ordinary time earnings (AWOTE), the concessional cap will increase to $27,500 from 1 July 2021.
What are the current and new contribution caps?
| Current concessional contributions cap | New concessional contribution cap |
| $25,000 | $27,500 |
| Current non-concessional contributions cap | New non-concessional contribution cap |
| $100,000 | $110,000 |
What does this increase mean for you?
Any increase in the super contribution caps means you may increase how much you can contribute to super. The tax benefits plus the compounding of returns can make a substantial difference to your final super benefit.
Additional concessional contributions to super can be made by ‘salary sacrificing’ through your employer or via ‘personal deductible contributions’.
You should consider whether to make non-concessional contributions or maximise your concessional contributions.
Concessional contributions
Additional concessional contributions can reduce your taxable income and your end-of-year tax liability. Concessional contributions are subject to just 15% tax on entry to your super fund compared to your upper marginal tax rate which could be as high as 37% or 45% (plus 2% Medicare levy) if you’re in one of the highest tax brackets.
Note: an additional 15% tax may apply to concessional contributions if your income is over $250,000.
How to make concessional contributions
Additional concessional contributions to super can be made by ‘salary sacrificing’ through your employer or via ‘personal deductible contributions’. Both methods have the same tax benefit so the method you choose comes down to what suits you:
Salary sacrificing comes out of your pre-tax salary and reduces your net taxable income meaning you may pay less tax on your personal income.
Personal deductible contributions are paid by you, and you can then claim a tax deduction when completing your tax return. If you choose this method, you need to submit a form to your super fund by a certain time advising your ‘intent to claim a deduction’ on your super contribution.
Making the most of ‘catch up’ contributions
‘Catch up’ contributions may allow you to use up to five previous financial years’ unused contribution caps in the current financial year if you meet certain requirements. The 2018/19 financial year was the first financial year you could accumulate unused concessional contributions. Unused carried forward concessional cap amounts expire after five years.
Non-concessional contributions
Non-concessional contributions do not entitle you to a tax deduction, but you won’t pay any additional tax as you’ve already paid tax via your personal income tax liability. Earnings on the contributions are taxed at only 15% and are tax-free once you access them as either a lump sum or a pension after age 60, when you satisfy a condition of release such as retirement.
Making non-concessional contributions to super might benefit you if you are seeking to contribute larger lump sum contributions.
Making the most of the ‘bring forward rule’
If you were age 64 or less at 1 July 2020 you may be eligible to use the ‘bring forward rule’, ie bring forward and use up to two future years’ worth of your non-concessional contribution caps.
Depending on your total superannuation balance this may allow you to contribute up to $300,000 (3 x $100,000) into super this financial year. However, if you wait and the cap increases from $100,000 to $110,000, the bring forward amount will increase to $330,000 next financial year.
You generally need to meet a ‘work test’ if you are 67 to 74 years old at the time of contribution.
Legislation is pending to increase the age at which you can trigger the bring forward rule from age 64 or younger as at 1 July of the relevant financial year to age 66 or younger.
With increases in the contributions caps on the horizon, 2021 may be a good year to revisit how much you are contributing to super and make a super plan for the future.
Source: IOOF