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Maximising Your Tax Refund: A Superannuation Strategy Explained
As the end of the financial year approaches, Australian taxpayers are looking for ways to maximise their tax returns. One intriguing method highlighted by Miriam Holme, founder of Fab Tax Accountants, involves leveraging personal superannuation contributions to achieve significant tax refunds while bolstering retirement savings.
What’s the Strategy?
Holme explains that many of her clients are capitalising on personal superannuation contributions, which can be claimed as tax deductions. Each taxpayer can contribute up to $30,000 per year as concessional contributions—this includes both personal and employer contributions that are taxed at a 15% rate within a super fund.
However, a key point many are unaware of is the ability to carry forward unused concessional contributions from the past five years. This provision can substantially increase the contribution limit, potentially adding up to $132,500 to your superannuation balance, given certain eligibility criteria are met.
How to Implement This Strategy
To get started, individuals can access their contribution cap history through the myGov portal, where it outlines the contributions made over the last five years. It’s crucial to note that if your total superannuation balance was below $500,000 on June 30 of the preceding financial year, you can carry over unused contributions.
With just under two months left in the financial year, Holme encourages taxpayers to act quickly, emphasising that super funds may take time to process payments. “A lot of people will be trying to utilise this strategy, so it’s important not to leave it until the last minute,” she advises.
Example of Potential Savings
An illustrative case involves a sole trader who made a $42,500 contribution for the 2024 financial year. This strategic move reduced their taxable income by the same amount, resulting in a tax saving of approximately $14,662.75 based on the previous tax rate of 34.5 cents per dollar for earners between $45,000 and $120,000. The super fund then taxed their contribution at 15%, amounting to $6,375. Altogether, this manoeuvre yielded a net tax saving of $8,287.75.
Benefits and Considerations
This approach is particularly advantageous for individuals in higher tax brackets, who can benefit significantly from the lower tax rate applicable to superannuation funds. For instance, if your taxable income falls between $18,201 and $45,000, you would pay 18 cents in the dollar, compared to just 15 cents in super tax, thereby realising savings.
While this strategy presents clear financial benefits, potential contributors should also consider their cash flow and immediate financial needs before making super contributions. As UniSuper notes, the strategy may suit individuals returning to work, receiving bonuses, or nearing retirement who wish to quickly bolster their superannuation balance.
Conclusion
In light of the impending financial year closure, taking advantage of the ATO’s provisions concerning personal superannuation contributions can lead to sizeable tax refunds while enhancing retirement savings. Interested taxpayers should evaluate their contributions and act promptly to ensure compliance with super fund processing timelines. By doing so, they position themselves to maximise their tax returns effectively.
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