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Earning over $45K? Here’s 1 thing you can do in June to boost your tax return

Posted: 6 June 2022 12:17 pm
News
Young woman at home

The more money you earn, the more you stand to save with this tax tip.

It's almost tax time again (where did that last financial year go?!) which means it's time to start gathering up all your tax deductions. Aside from the usual work-related deductions, there's another way you can reduce your taxable income that's surprisingly simple.

Did you know you can make a contribution to your super fund and claim it as a tax deduction? Here's how it works.

Claiming a super contribution on tax

You're allowed to contribute up to $27,500 worth of concessional contributions into your super fund each year. Concessional contributions are contributions that are taxed within your super fund at the rate of 15%. The super guarantee contributions your employer makes for you are included towards this cap.

So let's say you earn $100,000 and your employer has paid you $10,000 as super guarantee payments into your super fund over the past year. You can still contribute $17,500 yourself towards your super fund as a concessional contribution, to reach your annual cap.

If you decided to go ahead and make a contribution of $17,500 into your super fund before the end of financial year, you'd be entitled to claim a tax deduction for this amount. This is because the money will instead be taxed within your super fund at the special 15% tax rate, so you're entitled to a tax deduction for this to avoid being taxed twice on the money.

Earning a salary of $100,000, your income tax rate is 32.5 cents for each dollar above $45,000 (plus 2 cents per dollar for Medicare). By sending $17,500 to your super fund instead, you'd make a tax saving of 19.5 cents for each dollar you contributed. That's $3,412.50 back in your tax return.

Of course, if you want to make a personal contribution, it doesn't need to be that large. Even a contribution of $3,000 will get you back $585.

If you earn above $120,000 and are in the next tax bracket of 37 cents in the dollar (plus 2 cents Medicare), you stand to save even more. That $17,500 contribution would help you get $4,200 back at tax time and a contribution of $3,000 would help you get $720 back.

How to do it

If you want to do this, the first thing you need to do is work out how much you're comfortable contributing and if it keeps you within your annual cap. Remember, you're allowed to contribute $27,500 a year in concessional contributions including those made by your employer. So work out your total employer contributions for the year and work backwards from there.

If you go over your annual cap you'll either be made to withdraw the additional money plus any associated earnings, or you'll have to pay a much higher tax rate on it.

Once you've figured out how much you want to contribute you can do a direct bank transfer to your super fund. The account details should be easily found within your super app or online member portal. It's also really important that you submit a "Notice of intent to claim" form with your super fund, telling it you're planning to claim the contribution as a tax deduction.

While this strategy does help you save on tax and boost your super balance at the same time, there are downsides to think about too. The most obvious being that you can't access the money you add to your super until you're retired, so don't contribute any money that you might need in the short term.

Looking for more ways to boost your tax return this year? Consider what tax deductions you can claim and learn how to claim working from home on tax.

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