Using superannuation effectively can be a great tax planning tool.

As the end of June approaches it’s a good time to think about superannuation.  Superannuation can be a great tax saving tool for your year end planning.  The maximum that you can claim a tax deduction for is $30,000 if you are under 49 and $35,000 for those who were at least 49 on 1 July 2014.  The cap for non-concessional contributions (where no deduction is claimed) is $180,000, ignoring the bring forward provisions.

People earning their income by way of wages have 9.5% of their normal time earnings contributed as a Superannuation Guarantee by their employers.  The only way this group can increase their superannuation deduction is by way of entering a salary sacrifice arrangement with their employer.  This arrangement must be in place prior to the wage being paid.

Those who are self-employed or earning the majority of their income from non-wage sources can make personal contributions.  These people need to have less than 10% of their income by way of wages.  Any contributions made must be received by the Superannuation fund before 1 July.

In order for these contributions to qualify for a tax deduction the contributor needs to provide the Superannuation fund with a “Notice of intention to claim a tax deduction” prior to lodging their income tax return, or, at the very latest, by 30 June of the following year.  If this form is not lodged a tax deduction cannot be claimed.  The tax office does extensive data matching of most items in tax returns and superannuation contributions are no different.  The name and ABN of the receiving fund is included on the tax return form so this is quite a simple matter.

Once a condition of release has been satisfied you can start drawing benefits from your fund.  For those born before 1960 this first condition is attaining the age of 55 years.  From this time on a maximum of 10% can be taken as a benefit.  The amount is taxed but an offset is available up to age 60.  Thereafter benefits drawn are exempt from tax.  This allows a further tax saving strategy to be utilized.  So one could draw up to 10% of your superannuation account tax free and re-contribute it to the fund and claim a tax deduction.  Once you turn 65 the 10% restriction no longer applies.

So, using superannuation effectively can be a great tax planning tool.