Save up to $500,000 in tax

Prepare to boost your super. The tax savings can also be quite significant! Depending on your personal tax rate and what tax rate you can access within super – the tax saved could add up to one, two or three years worth of retirement spending.

Working out your capacity to contribute now is important, because the limits are shrinking.

From 1 July 2017 if you have $1.6 million or more in total super you won’t be able to make any non-concessional contributions. In assessing your total super balance, the ATO considers all account types – accumulation accounts, pension accounts, defined benefit accounts and defined benefit pensions. If you are below $1.6 million, an annual non-concessional limit of $100,000 will apply and if you are under 65 you can do up to $300,000 by bringing forward three years’ worth of contributions.

But this financial year you can contribute up to $180,000, or if you are under 65 up to $540,000, by using the bring forward rule.

If you’re concerned the gloss has worn off super as an investment vehicle, it’s well worth doing the sums. Inside super, the maximum tax rate in the accumulation phase is 15 per cent and in the retirement pension phase up to $1.6m can be held in a zero tax environment. Take this example of what tax savings accumulate on $500,000 invested in super versus a higher tax environment. And if you have less to invest, the benefits are just as effective – relative to the amount put in.

Potential tax savings on $500,000 investment in super

Difference between tax rates Over 10 years 3% p.a return Over 10 years 5% p.a return Over 20 years 5% p.a return
49% $ 90,000 $ 171,000 $ 499,000
24% $ 46,000 $ 88,000 $ 272,000
17.5% $ 33,000 $ 65,000 $ 204,000

Note: Actual annual earnings and the level of capital gains versus income in the total return figure will impact on the actual benefits received. All figures are rounded and expressed in today’s dollar terms. The return is net of inflation and fees. Current tax rates used. The returns and calculations are not a predictor of future earnings.

Actual earnings will impact on the final benefits, but assuming a moderate return of 3% above inflation each year, the accumulated tax savings over ten years compared to investing in the top marginal tax rate is $90,000. If the difference between the personal tax rate and what tax rate you can access in super is 24%, that’s $46,000 in tax savings. Even with a 17.5% tax difference the savings are still $33,000.

Over 10 years with a higher return of 5% per annum, the accumulated tax savings jump up to $171,000 and over 20 years between $204,000 to half a million dollars.

That money goes toward your retirement needs rather than to the ATO!

Who should consider non-concessionals before 30 June 2017?

  • Long term savers with $1.6 million (or close to it); as they won’t be able to put personal savings into super from 1 July 2017
  • Super fund members reaching age 65; after this age it’s harder to get money into super
  • Pre-retirees who may find it difficult to reach their target retirement figure with the lower salary sacrifice limits
  • Investors with plans to sell or downsize properties

As super is locked away until retirement, it’s vital you consider your cash-flow and set aside a reserve before putting funds into super. If your debt is non-deductible, in most cases it makes sense to prioritise paying this down and defer making extra super contributions.

If the only way you can get money into super is through the sale of an asset that creates Capital Gains Tax, there’s strategies to help manage that tax as well!


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Nerida Cole

Managing Director, Head of Advice

Nerida is a highly respected expert on superannuation, including self managed super funds (SMSF), retirement planning and wealth-building strategies. Through her role she works closely with Executive Chairman Daryl Dixon, Director of Quality Management Stephen Bone and the Compliance team to keep the firm’s financial strategies at the forefront of the latest legislative requirements.

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