Superannuation can deliver some huge tax refunds for workers, and experts say now is the time to start planning for tax time.
Where else can a worker claim a $100,000-plus tax deduction simply by pumping extra cash into their life savings? However, as with many financial strategies, there are a few catches.
Australians can currently make up to $30,000 a year of concessional (tax-deductible) super contributions, and this annual cap includes employers’ compulsory 12 per cent super contributions.
Catch-up rules allow unused contributions from the past five financial years to be made in the current year, but only for those whose super balance started 2025-26 at below $500,000.
This effectively allows anyone who has not maximised their previous years’ concessional super contributions to claim a big extra tax deduction this year – potentially six figures for people with plenty of unused cap space – although of course they first need to have the money available to inject into super.
There are other tax incentives and benefits for super fund members to consider in April, including co-contributions for lower-income earners, spouse contributions for couples, and non-concessional contributions for people wanting to give their balance the biggest boost possible.
As most people don’t have thousands of spare dollars lying around, these strategies should be planned for in advance rather than a last-minute rush.
Top-up time
Financial strategist Theo Marinis said super fund members looking to top up their personal concessional contributions should be confirming their amounts and sorting out their strategy quickly.
“You haven’t really got until June 30 – you have to get it in before the funds close off, so you probably want to get it done by early to mid-June at the latest,” he said.
“If you can put in $20,000 of personal concessional contributions and you are on the 30c-in-the-dollar tax rate, that $20,000 will save you $6400 of personal tax.
“The fund will take $3000 of [contributions] tax, but you actually get $6400 into your hand out of the $20,000 you put into super.”
That’s for concessional contributions, and non-concessional contributions – made with after-tax dollars including savings or proceeds from selling investments – carry a much bigger clout.
Each individual can inject $120,000 of non-concessional contributions annually, and also bring forward three future years.
Mr Marinis said the $120,000 cap was climbing to $130,000 in July, so this meant people could contribute $120,000 in June and then another $390,000 after July 1.
“For a couple, if they have the money, they can get more than $1m into super between them from mid-June to mid-July,” Mr Marinis said.
H&R Block director of tax communications Mark Chapman said early planning around super provided flexibility, maximised tax benefits and reduced the risk of errors.
“Super remains one of the most tax-effective planning tools,” he said.
Mr Chapman said April was the time for super fund members to:
• Check how much remained in their concessional contributions cap and top up if appropriate.
• Consider carry-forward (catch-up) contributions that could provide “significant tax benefits”.
• Review after-tax, non-concessional, contribution opportunities for wealth building and estate planning.
• Ensure any extra contributions would be received and processed before their fund’s June cut-offs.
“Confirm that super accounts, insurance cover, and beneficiary nominations are up to date,” he said.
Incentives for everyone
Superannuation is not all about big bucks. The super co-contribution scheme is open to people earning below $62,488 and effectively delivers a 50 per cent return on up to $1000 of non-concessional contributions that they put into their super. The federal government contributes up to $500, and there are eligibility and income threshold factors, so it’s worth understanding the rules.
Meanwhile, people whose spouse earns below $40,000 can get an offset worth up to $540 a year by paying up to $3000 into their partner’s super fund. The ATO says there are general and specific eligibility conditions for this incentive and, like the co-contribution, it must be made before the end of the financial year.
Chartered accountant and Mr Taxman founder Adrian Raftery described the super co-contribution as “the government’s free money service”.
“It is surprising how few people actually take advantage of some free money from the government,” Dr Raftery said.
“If your income is under $47,488 and you contribute $1000 post-tax into super the government will match it 50c in the dollar. While this incentive gradually phases out above this figure at $62,488, it’s free money.”
Dr Raftery said where one member of a couple had a high superannuation balance, they could consider super splitting with their spouse to aim to eventually even up their nest eggs.
“Two million dollars is the magical figure to have superannuation tax-free in retirement so it is crucial that couples maximise their $4m combined tax-free balance and not have one spouse over the $2m threshold with one well under,” he said.
“The downsizer contribution concession should also be considered for those who have sold their owner-occupied home.”
This concession is open to people aged over 55 who had owned their home for 10 or more years, and allows them to pump an extra $300,000 each into super regardless of the other contribution caps. Once again, there are several conditions and rules, so it’s worth doing your research or seeking professional advice.
Original article published here in The Australian.