Slash your tax bill!

One of the biggest issues facing most wage earners is the simple annoyance that no matter how much they earn each week, an ever-increasing chunk of their income goes straight to Canberra in the form of taxes.

One of the few ways of reducing your tax bill is by making additional contributions to super. While this is particularly important to those nearing retirement, it is something every wage earner should keep in mind.

Importantly now is the time to act. The next three months, April, May and June are the times you should be thinking about reducing your tax bill. As soon as the clock ticks on July1, the time has passed and there is nothing you can do to reduce your tax bill for this financial year.

So, it’s important to talk to your tax agent now as to how you can reduce your tax bill. I should stress I am not a tax agent, and I can’t provide you with tax advice. I can provide you with some general advice though.

The Government allows all Australians to contribute up to $27,500 a year to super and claim that amount as a tax deduction. This includes the Super Guarantee Contribution made by your employer, so you need to be careful you don’t exceed this limit.

The easiest way to make additional contributions to super is to make the initial contribution this financial year as a non-concessional contribution and you can contribute up to $110,000 a year under this label. So, it is difficult to exceed this limit unknowingly.

Then when it comes time to complete you tax return, you need to tell your tax agent exactly how much you and your employer have contributed to super during the previous financial year. They can then complete a Notice of Intent.

This document can inform the Government just how much of the additional non-concessional contributions you intend to claim as a tax deduction and yes, I know this change happens after July 1, but the contribution has to be made before July 1. You can’t make the contribution after July 1.

Your tax agent can then determine, based on your taxable income, just how much of the non-concessional super contribution you intend to claim as a tax deduction and the Notice of Intent can be completed accordingly.

This is important. If you make a concessional contribution, rather than a non-concessional contribution, and the words are important, then as soon as you make the contribution you will be taxed at 15 per cent.

This might be wasted money when your intention is really to save tax rather than pay more tax.

Wasted because you may not be earning sufficient income to justify claiming the full $27,500 as a tax deduction or that once your employer contributions are included, you may have exceeded the limit and incurred some penalties.

So, if you are in any doubt as to how much you should contribute, make any extra contribution as a non-concessional contribution and leave it to your tax agent to work out exactly how much you should claim as a tax deduction.

Importantly, where ever possible if you do have any spare funds such as last year’s tax refund you should be thinking of placing this in super. Just an extra hundred dollars a week going into super will mean more than $5,000 a year.

This will be $50,000 across ten years and with earnings on earnings, will be closer to $100,000 by the end of the decade. This will make a big difference to your super balance when you do retire.

But more think about it as reducing your tax bill and making money that would normally go to Canberra by way of income tax, stay in your pocket, albeit your superannuation pocket.