How to boost your super balance and save tax

For most people, superannuation will become a key asset in planning for retirement and achieving financial security. The reason for this is twofold:

1) Employer contributions into super are usually compulsory and as such, the power of compounding returns over your working life results in a significant pool of funds upon retirement, and

2) Superannuation provides strategic planning opportunities and tax benefits not available with other investment structures.

Given this, it’s in your interest to optimise your super arrangements and maximise the value of your account balance over time. Whether you have your superannuation invested in an industry, retail or self-managed super fund (SMSF), there are a number of strategies you can consider to boost your account balance and reduce tax.

Salary sacrifice to reduce tax…
Salary sacrificing a portion of your wage is the first place to start. By doing this, you are contributing funds to superannuation before income tax has been applied. However, upon receipt of salary sacrifice contributions, your super fund will deduct a contributions tax of 15%. Even so, 15% tax is usually far less than your marginal rate of income tax (up to 46.5%) that would have otherwise applied had you taken the salary as income. Salary sacrificing is a simple strategy to increase your fund balance and reduce tax, but there are annual contribution caps that need to be considered. Exceeding them could result in a penalty from the tax office.

Use a Transition to Retirement (TTR) strategy to boost super savings…
If you are working and aged 55 or older, you can consider a Transition to Retirement strategy (TTR). Generally, this involves salary sacrificing an amount of your wage to super and drawing a pension from super. This strategy is purely tax-driven. We’ve already mentioned the tax benefits of salary sacrificing, but a TTR strategy brings further tax savings because the pension payments will attract little or no tax and once you start to draw a pension from your fund, fund earnings will be tax free (fund earnings are taxed at 15% if not drawing a pension). In terms of cashflow, the idea is to ensure your net cash position doesn’t change when you implement a TTR strategy (i.e. the combined salary and pension amount you receive is the same as your usual take-home salary), and the tax saved by using this strategy simply means more money stays in your super fund and less goes to the tax office.

Earn a 100% return on investment using the Government co-contribution scheme until June 30 2012…
Whilst the government co-contribution scheme has become less generous in recent years, it still remains an attractive incentive. For the 2011/12 financial year, if you make a $1,000 non-concessional (after-tax) contribution to super you may be eligible for a co-contribution of up to $1,000. In other words, a 100% return on investment. From 1 July 2012, the scheme is changing and the maximum entitlement will reduce to $500.
To be eligible for a co-contribution, you need to make sure you meet the co-contribution work test (at least 10% of your income must be from eligible employment), income test (earn less than $61,920 pa) and age test (must be under age 71 at the end of the financial year in which you made the contribution). If you meet these criteria but are 65 or older, you also need to meet a 2nd work test to qualify for a co-contribution. The test requires that you work at least 40 hours over any 30 consecutive day period during the year in which you made the contribution to super.

Split contributions with your spouse and get access to super sooner…
Contribution splitting is something else you could consider, particularly where there is a significant age gap between you and your spouse. Contribution splitting only applies to concessional (pre-tax) contributions, such as employer and salary sacrifice contributions and only 85% of contributions can be split (as 15% contributions tax needs to be deducted). Because superannuation is not accessible until you reach preservation age (55-59), the older spouse will be able to access their super (and take advantage of the tax benefits) earlier than the younger spouse. For this reason, you could consider splitting the younger spouse’s contributions to the older spouse. This might be a particularly attractive option if the younger spouse is the higher income earner and has a higher account balance than the older spouse.

Sell your business tax-free and make a CGT cap contribution to super…
If you own a small business and are planning to sell it, you may be eligible to make CGT cap contributions to your super fund. CGT cap contributions do not affect your other contribution caps (i.e. concessional and non-concessional) and a lifetime limit of $1.205m (indexed) applies. This means the cap doesn’t restart each year like your other caps, it’s a once-off lifetime cap but can be used progressively. CGT cap contributions come about as a result of applying the capital gains tax small business concessions upon the sale of your business, specifically the small business 15-year exemption and the small business retirement exemption.
If you are eligible to apply these concessions when you sell your business, it is possible that the entire capital gain will be disregarded and up to $1.205m is contributed to your super fund as a CGT cap contribution. This contribution is not subject to contributions tax of 15%. By employing this strategy, you have effectively sold your business without paying any capital gains tax on the profit and converted the funds to a tax-free income stream.

Pay less for Life & TPD insurance…
If you hold Life and Total and Permanent Disability (TPD) insurance outside super, you could consider holding these policies within your super fund instead. Premium payments then become payable from your super fund account balance, meaning you could salary sacrifice the premium amount (making sure you account for the 15% contributions tax that will apply) to your super fund to fund the payment. By doing this, you are effectively funding your insurance premiums in pre-tax dollars whereas if the policies were held outside superannuation, you would be funding the premiums in post-tax dollars (i.e. up to 46.5% tax may have been paid on your income).

Reduce your income tax bill by making a deductible contribution…
If you are self-employed, you may be eligible to make tax-deductible contributions to your super fund. By doing this, you could reduce your taxable income by the amount of the super contribution and reduce your income tax bill. However, you need to ensure you meet the criteria to make a deductible contribution and don’t exceed your annual concessional contribution cap.

Reduce your income tax bill by making a spouse contribution…
Lastly, if you have a spouse and they are not working or are working part-time, you should consider taking advantage of the spouse tax offset. If your spouse earns less than $13,800 pa, you may be eligible for a tax rebate of up to $540 where you make a non-concessional (after-tax) contribution of $3,000 to their super fund. Additionally, you could consider making non-concessional contributions to your spouse’s super fund over and above $3,000 pa and indeed up to your spouse’s annual non-concessional contribution cap of $150,000.
The reasons for considering this are the same as those for contribution splitting above. To be eligible to receive a spouse contribution, your spouse must be under age 65 or if 65-69, must satisfy the same work test outlined for government co-contribution eligibility above (i.e. the 2nd work test). The age of the contributing spouse is irrelevant.

These are some of the strategies you could consider to boost your superannuation savings and reduce your tax bill. Whether these strategies are appropriate for you will depend on your individual circumstances.


This advice may not be suitable to you because it contains general advice that has not been tailored to your personal circumstances. Please seek personal financial and tax advice prior to acting on this information.Opinions constitute our judgement at the time of issue and are subject to change. Financial Planning Expert Pty Ltd does not give any warranty of accuracy, nor accept any responsibility for errors or omissions in this document.
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    Financial Planning Expert is an independent financial planning business based in Melbourne. We provide genuinely independent and conflict free financial advice. We’re experts in self-managed superannuation fund (SMSFs) advice and strategy, retirement planning, property and share investment advice, life and income protection insurance, tax planning, asset protection, estate planning and advice for Australian expatriates.