Boosting your tax refund with Concessional Contributions

The other week I talked with Jessica Irvine, a senior economics writer with The Sydney Morning Herald/The Age about how to boost your tax refund with a contribution to super.  While the days are narrowing down to meet any contributions deadlines this financial year, it’s worth being abreast of what your options are so you can do some planning for future financial years.

Here’s a bit of background and info about the strategy:

Up until a few years ago, only self-employed people could make what was once called a ‘deductible’ contribution to super and I’d often see my ‘self-employed’ clients towards the end of the financial year to look at their tax situation and make a recommendation around the lump sum amount to add to super to get the most tax-effective outcome for them.  

Employees who wanted to make extra tax-effective contributions on top of what their employer contributed to their super had to salary sacrifice part of their wage (reducing their take-home pay with their employer in return for additional contributions to super at a reduced tax-rate).  

These days employees can also make these deductible one-off contributions at any time during the financial year and it’s a strategy that we can look at to save considerable tax for clients (and boost their wealth!).

Concessional Contributions:

Here’s some of the thing you need to know about making these types of contributions (which are called ‘concessional’ contributions across the board now):

  • The annual cap on concessional contributions is $25,000, rising to $27,500 from next financial year (2021/2022)
  • Your Superannuation Guarantee (SG) contributions, the ones your employer makes on your behalf, and any salary sacrifice to super you’ve already made throughout the year, count towards this cap.
  • You need to be earning less than $250,000 year to get the low tax rate of 15 per cent on the first $25,000 you contribute each year (those earning over this amount might pay 30%, which would still be considerably less than their marginal tax rate).
  • If you’ve got unused amounts of your concessional cap from previous financial years (going back to 2018/2019) you can bring these forward and use them, you have a 5 year rolling period to use them.
  • You should communicate with your fund or financial adviser to make sure you’ve followed the right process for the type of contribution you are making
  • You‘ll also need to fill out the ATOs  paperwork to inform them you are intending to claim a tax deduction for your contribution and you’ll need to include it in your tax return.

So what’s the numbers? 

If you’re on the 32.5% tax bracket and contributed $10,000 as a concessional contribution, you could get a tax refund of $3,250 in your personal name, but bare in mind the $10,000 would attract 15% tax in the fund ($1,500) so the net benefit would be $1,750 in tax savings

You can find out from your fund how much has been contributed so far in the financial year and what you have in terms of unused contributions from previous years.  You can also check your myGov account which should have a record of previous years contributions.

It can be a lot to take in and a lot to get ‘right’ and it’s an area you really should do thorough research based on your personal situation and/or seek the expertise of a financial adviser who can take into account your personal circumstances.  I’ve provided all this information for the purpose of educating you and it shouldn’t be considered personal advice as I don’t know or understand your personal circumstances.

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MoneyMode Advice Pty Ltd (ABN 29 627 492 791) is a corporate authorised representative of Integrity Financial Planners Pty Ltd (AFSL 225051, ABN 71 069 537 855)

This information has been prepared without taking account of your objectives, financial situation or needs. Because of this you should, before acting on this information, consider its appropriateness, having regard to your objectives, financial situation and needs. This presentation provides an overview or summary only and it should not be considered a comprehensive statement on any matter or relied upon as such.

Renae Vercoe
Founder of Money Mode, financial professional, passionate educator, partner, mum and financial freedom fighter!