Super vs Savings

Cash in a super account is probably earning you at least 5 per cent each year, after costs. By comparison, money sitting in a savings account with current interest rates at historic low levels is probably earning less than 1% interest! Keeping funds in an offset account makes sense if it’s reducing your mortgage repayments, however unless your home loan interest rates are higher than 5%…. in the long term, you may be substantially better off financially if you move money from your savings or offset into your super fund now.1

CIA Tax Tip: Super contributions you wish to claim in this tax year need to be paid well before June 30… which means by mid-June, so DO IT NOW!2

Superannuation Guarantee

The Australian Superannuation Guarantee has been set at 9.5% per annum since 2014 but from 1 July 2021, legislated super payments will increase by .5% each year until they reach 12% in July 2025.2

CIA Tax Tip: An average earner saves around 20% of tax on their super contribution so even if you put the money into the safe cash option of the fund, you have already had one great investment this year! However, if you are on the younger side with a lot of debt then speak to us about doing the numbers on super contributions before you do. 2

Before-tax contributions

Concessional contributions paid into your super account receive a concessional (or lower) tax rate of 15%. They are contributions made from money that has not yet been taxed – so it’s before tax. That’s why concessional contributions are sometimes referred to as being before-tax contributions. From 1 July 20214 the concessional cap into super rises to $27,500 (including Superannuation Guarantee employer contributions and salary sacrifices).

CIA Tax Tip: Don’t forget personal super contributions can also be claimed as a deduction under the same limit!2

Making extra super contributions

If you are aged under 67, you may also be able to contribute up to $330,000 non-concessionally at once. This is a three-year cap so it doing it now all at once may limit the contributions you can make in future years. If you are over 67 you will need to pass the ‘work test’* and extra contributions will be restricted to $110,000. Unfortunately this doesn’t apply if you are aged over 75.2

CIA Tax Tip: if you haven’t used all of your concessional cap in an earlier year, unused cap amounts can be carried forward for up to five years before they expire.

*To meet the work test, you must be gainfully employed for at least 40 hours during a consecutive 30-day period in the financial year in which the contributions are made. This is an annual test which means once you meet this test you can make contributions for the entire financial year.5

Co-contributions

If you’re a low or middle-income earner and make personal (after-tax) contributions to your super fund, the government may also make a contribution (called a co-contribution) up to a maximum amount of $500.6

CIA Tax Tip: This is something you should consider doing with a 50% matching rate up to $1,000 of after-tax contributions, so that means up to $500, free, from the ATO to you in your super account!!2

Superannuation pensions

CIA Tax Tip: Remember, you need to have made your annual drawdowns by June 30 and the good news for 2020 and 2021 the minimum amount to drawdown has been halved. Maximum drawdown limits are unchanged.

Spouse Contribution

The amount of the offset is 18 per cent of the spouse contribution you make (max. offset of $540) reducing your own tax. Spouse income must be under $37,000 to get the full offset, then it gradually reduces to zero at $40,000.2

CIA Tax Tip: There are always other conditions so check with CIA first or your Superfund to avoid disappointment.2

Disclaimer: The information in this publication is intended to provide general information only and does not take into consideration any person’s individual objectives, financial situation or needs. You should assess whether the information is appropriate for you and consider talking to a financial adviser before making any investment decisions. Full terms and conditions are available on the First Option Bank website.

References:

*CIA Tax is a tax and financial wealth advisory service recommended by First Option Bank.

  1. Super still trumps cash in retirement savings – Noel Whittaker, The Age 1 July 2021
  2. CIA Tax
  3. ATO: Super contribution caps will increase from 1 July 2021
  4. Budget 21 Fact Sheet for Superannuation
  5. ATO: Growing Your Super
  6. ATO: Super Co-contributions