Reducing your tax bill this year

As June 30 and the end of the financial year looms over us, it’s important that everyone pause and think about whether it is possible to reduce their overall tax bill by making extra contributions to super.

While there are a number of strategies that may or may not apply to your situation, each one basically means diverting funds that would otherwise go to Canberra in the form of taxes and keeping them within your super fund.

Importantly, only a tax agent can advise you of the best way forward, but here are some suggestions you should think about

1.      Salary sacrifice

This is where your employer contributes extra amounts in addition to your superannuation guarantee contribution on your behalf from your pre-tax dollars into your super account in the form of concessional contributions.

Basically, if you earn more than $45,000 a year, you will reduce your overall tax bill by sacrificing some of your salary into super, which means almost everyone in full-time work should be thinking of salary sacrifice.

2.      Government co-contribution

If you earn less than $60,000 a year and are under age 71, you may be eligible for a Federal Government co-contribution of up to $500 to your super account if you contribute up to $1,000 in after tax money to your super.

I love it because all you have to do is make the contribution to your super and then when you lodge your tax return next financial year, the Federal Government will make this payment automatically on your behalf. There’s no additional paperwork or means testing.

3.      Personal contributions

People often overlook making personal contributions of up to $120,000 to super and I think that’s a mistake. The benefit of these contributions is they boost your savings in super and there is no contribution tax applied to these types of contributions.

Any spare funds you might generate from say a garage sale or a winning bet or even your tax return itself, should go straight into your super account where it will taxed at 15% and not at your marginal rate if your hold it outside super and it makes income for you.

4.      Spousal contribution

If one partner is on a higher wage than the other on less than $40,000, it might make financial sense to make a spousal super contribution of up to $3,000 in order to get a tax offset of $540 on your overall tax bill

5.      Super contribution splitting

This is a clever way of ensuring your partners super stays in shape if they are out of the workforce or working part-time but just be aware that you don’t breach your own contributions caps.