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QUESTIONS ABOUT YOU

A. Your income: Annual salary (and other cash employment income): $ Income from self employment: $ Personal investment income: $ If unsure, check your income tax return. Investment income may be negative, ie a loss. B. Your age: Age at upcoming 30 June year end: years

C. Your existing superannuation: Superannutaion account balance: $ Tax free component of the account: $ Average before tax investment return: % If unsure, check your annual superannuation statement. D. Your spouse's income: (relevant only for strategy 5) Spouse income: $

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SUPERANNUATION TAX SAVING STRATEGIES   

1. Government Co-contribution: Not available to you.
About the strategy: The Government Co-contribution strategy is valuable for most lower and middle income earners who are working. For each dollar a quailfying individual contrbutes after-tax, the Government contributes $0.50 (up to a maximum for lower income earners of $500 per annum, tapered for middle income earners).

2. Salary sacrifice contributions: Saves you $5,343 tax each year.
$27,400 extra contributed saves tax of $5,343 (or $0.195 tax saved per dollar contributed).
About the strategy: Sacrificing salary for additional employer superannuation contributions saves tax for virtually all employees because personal tax rates are higher than the concessional tax rate applicable to superannuation contributiuons (except individuals with very low incomes who do not pay tax on personal earnings). After reaching age 65 you must work 40 hours over 30 consecutive days at least once during the year to use the strategy. The strategy is not allowed at all after reaching age 75.

3. Personal deductible contribution: Not available to you/does not save you tax.
About the strategy: Individuals who are not employees, or who earn less than 10% of their total income from employment, can generally claim tax deductions for personal contributions. Qualifying individuals can claim a tax deduction if a valid 'Notice of Deduction' is given to the superannuation fund.

4. Start a superannuation pension: Saves $180 tax, OR $2,100 if you elect to treat pension drawdowns as lump sums
Saves $2,100 fund tax each year compared to maintaining an accumulation account... but there is $1,920 personal tax on a pension drawn at the minimum 4% of the account balance. Overall saving reduced to $180
OR
You can strat a pension and elect in advance for each pension drawdown to instead be taxed as a lump sum. Lump sums have lower maximum tax, so this alternative is generally advantageous. Tax on the pension drawdown under the lump sum elections is $0. Therefore the overall tax saving using the lump sum elections becomes $2,100.
About the strategy: A pension can be started from age 56 (possibly 55). The superannutaion fund does not pay tax on earnings on the assets it uses to support the pension. This compares to 15% fund tax on earnings during accumulation phase. There is generally some tax on the pension drawings until age 60. Therefore starting a pension may not save tax overall until then. The tax cost on pension drawing before age 60 can often be reduced by electing in advance for the pension payments to be taxed as lump sums - lump sums have less tax. (For the lump sum tax calculation, the calculator assumes equal drawdowns from the current year until the year you turn 59, and that your personal income form non-superannuation sources will be the same in each of those years.) From age 60, drawdowns are wholly tax free to you.
Re-contribution strategy: Not only can starting a pension save tax, it can provide you with sufficent funds to fully utilise the contribution strategies as well and save even more tax! Even if the pension itself has a net tax cost, you may still be ahead from the tax saved on additional contributions. If you are aged 65 or over then re-contribution strategies are only allowed if you worked 40 hours over 30 consecutive days at least once during the year. You cannot pursue re-contribution strategies at all once you reach age 75.

5. Spouse contribution: Saves $540 tax each year
Receive a $540 tax offset for making a $3,000 after-tax contribution for your spouse (or $0.18 tax offset per dollar contributed)
About the strategy: You are entitled to an 18% tax offset for after-tax contributions you make for your low-income spouse. The maximum $540 offset is tapered to nil between spouse income of $10,800 and $13,800. Your spouse must be an Australian tax resident. If your spouse if aged 65 or over, the spouse needs to have worked at least 40 hours over any period of 30 consecutive days during the year.

6. Invest after-tax savings into superannuation: Saves $7,371 tax each year
By contributing $540,000 into superannuation you save $7,371 tax on investment earnings each year while the investments continue to be held in superannuation.
About the strategy: The tax rate on investment earnings in superannuation is lower than personal tax rates on earnings from investments you hold directly (except the lowest income individuals who do not pay tax on their income). Based on your present age, you can repeat contributions up to $540,000 over each three year period without any tax on the contributions. The ability to contribute becomes more retsrictive from age 65. If you wish to hold negatively geared investments, then considered purely from a tax perspective the investments are generally better held personally (or by some family-controlled vehicle which has other taxable income to utilised the excess tax deductions from the gearing) than through a concessionally taxed superannuation fund.
Using the contribution to commence a pension: the tax saving from this strategy can be increased by commencing a pension (strategy 4) using the increased superannuation account balance.

Assumptions and qualifications:
- You are Australian citizen or permanent resident.
- If you have a spouse he/she is too, and you are not separated.
- You hold an accumulation account in a non-Government complying superannuation fund.
- Your employer has made only the minimum legislated mandatory superannuation contributions to that fund.
- Your other employment income that is in addition to salary is in respect of ordinary hours of work.
- You have not already made any personal contributions.
- You do not earn any exempt foreign income or exempt Government benefits, pay or recive child support, or have any reportable fringe benefits.
- You lodge an income tax return each year.
- Application of Medicare Levy has been applied on a simplified basis - this can effect lower and middle income earners.
- Non-superannuation tax offsets are ignored, in particular the low income tax offset and senior Australians and pensioner tax offset - this can effect lower and middle income earners.
- Superannuation fund fees are ignored.
- Social security ramifications are not considered.
- While some testing of the accuracy of the results produced by this tool has been undertaken, testing has not been comprehensive.
- Superannuation tax proposals announced in the pre-election Federal Budget on 3 May 2016 have not been taken into account.

Note: This tool is only a guide, does not take into account all personal factors, should not be used as a basis for business or other decision making, and should only be viewed as a starting point for further consideration of potential superannuation strategies. Seek professional advice before proceeding.

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© 2016 Graham Warren, Melbourne, Australia.
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