If you’re an employee receiving the standard super guarantee (SG) rate, you can look forward to a super boost from 1 July 2023 when the SG rate increases from 10.5% to 11%. There are also some ways to make additional concessionally taxed super contributions to help build a bigger retirement nest egg.
SG contributions are employer contributions to super which must be made on behalf of eligible employees. The SG rate will increase from 10.5% to 11% on 1 July this year. Further increases are scheduled for the next two financial years, with the SG rate to reach 12% from 1 July 2025. These increases might be great news if you’re an employee, as they may help you secure a better retirement. Keep in mind, if you are on a fixed total salary package your take home pay may reduce because of an increase in the super component of your package.
Sacrifice pre-tax salary into super
A popular way to make additional concessionally taxed super contributions is via salary sacrifice. This is where you arrange with your employer to forgo pre-tax salary in exchange for additional employer super contributions. One advantage of salary sacrificing into super is that contributions, like SG, are generally taxed at 15% rather than personal marginal tax rates, which may be up to 47% (including Medicare Levy).
Make personal deductible contributions
If you like to be more hands on, you may prefer to make personal deductible super contributions rather than salary sacrifice into super. Personal deductible super contributions allow greater flexibility. You can choose when in the financial year you make the contribution and how much you claim as a deduction. This can be helpful if you have fluctuating cashflow or simply wish to top up your super closer to 30 June.
Consider the concessional contributions cap
There are limits on the concessional contributions you can make, which applies to SG, salary sacrifice and personal deductible contributions. The standard cap on concessional contributions is currently $27,500 per year. However, some people can tap into past year’s unused concessional cap amounts, meaning their concessional cap can be higher than $27,500 per year. To be eligible to tap into past year’s unused concessional contribution cap amounts, you must have a total super balance of less than $500,000 on the previous 30 June and have some unused concessional cap amounts since 1 July 2018.
There are other issues to consider and steps to take when making additional concessionally taxed super contributions. Please contact your financial adviser if you’d like more information.
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