In this article Prophet invest is going to take a look into some of the main incentives currently available for superannuation to ensure you’re making the most of your money.
In Australia it is mandatory for employers to pay 9.5% super to their employees, this is set to increase later this year. You can also opt to put further money into your superannuation. In basis there are two methods of doing this: Before tax or After Tax. Let’s break this down and find the best option for you.
After tax contributions: As a general rule after tax super contributions are more suitable for low-moderate income earners. For low-moderate income earners If you make an after-tax contribution to your super (and don’t claim it as a tax deduction) the government will contribute a further set amount dependent on your situation. The cut off for this amount is for people earning over $53,564 (including employee super contributions in a year). For example, if you earn $50,000 and your employer pays you $4750, you will not be eligible. The amount the government contributes depends on how much you earn and how much you contribute, as seen below.
|Income||Contribute $1000||Contribute $800||Contribute $500||Contribute $200|
|$38564 or less||500||400||250||100|
|$53564 or more||0||0||0||0|
Some more key criteria are you must be less than 71yrs of age, be an Australian citizen, lodge a tax return for the relevant financial year. Participation in the co-contribution is simple, all you have to do is make a contribution to your superannuation and the government will automatically know and pay out the amount if the criteria is met.
Before Tax Contributions: Superannuation is taxed at a concessional rate of 15%, which means that compared to income tax it can be a more tax efficient way to invest your money. In order to take advantage of this there is two way you can go about it 1. Salary sacrifice through your employee 2. Claim a tax deduction on contributions you make post tax. To salary sacrifice you can contact your employee to withhold some of your pay to go directly into your superannuation, this will then be taxed at 15% rather than your income tax rate. The second option is you can contribute a set amount to your super yourself and then claim this as a tax deduction, the end result is it will be taxed at 15%. Thus both options have the same net effect. One catch to this method is that you can only contribute a concessional amount of $25,000 per year (this may be higher if you haven’t reached the limit in previous years).
Superannuation can be a great way to grow your wealth in a tax-efficient way. For help finding which method works best for you and seeing how much before tax contributions can help you check out this online calculator: https://moneysmart.gov.au/grow-your-super/super-contributions-optimiser