One of the most tax-effective ways to save for retirement is through superannuation and by investing before 30 June 2011, you may be able to reduce your tax liability this financial year. We outline a few super strategies that can help boost your super and save tax. 

Why is super tax-effective?

By investing in super, you can access a number of tax concessions, helping you to minimise your tax liability. The main tax incentives, compared to other investments, are that super is only taxed at up to 15% on contributions and up to 15% on earnings.

• With less tax applied to your super investments, you will have more money to accumulate wealth than if you were to invest outside of super.
• People aged 60 and over can withdraw their money from super tax free, making it an attractive option to fund retirement. 

Top up your super with these strategies

Salary sacrifice and save tax

One of the most tax-effective ways to top-up your super is to make a contribution through salary sacrifice. This redirects a portion of pre-tax salary into super.

The main tax benefit is that salary sacrificing can reduce your taxable income. If you took the money as salary it would be taxed at your marginal tax rate (up to 46.5% including Medicare levy). However, by salary sacrificing into super, your contribution is only taxed at 15%. That's a tax saving of up to 31.5%, which means more money available to invest for retirement.

For example, the table below shows that a person earning $90,000 could salary sacrifice $10,000 into super over 1 year and reduce their taxable income at the same time.

Boost super and save tax throught salary sacrifice. Earning $90,000 pa and salary sacrificing $10,000 into super
	Without salary sacrifice	Salary sacrifice
Salary	$90,000	$90,000
Less salary sacrifice	-	($10,000)
Taxable income	$90,000	$80,000
Income tax (incl. Medcare levy)	$22,600	$18,750
15% super contributions tax	-	$1,500
Total tax	$22,600	$20,250
Total saving	-	$2,350

Note: Assumes 2010/11 tax rates.

Watch your limits

When making contributions into super, make sure that you don't go over the annual limits set by the government, or you may be liable for extra tax.

Contributions made with pre-tax money (including salary sacrifice and compulsory employer contributions) are limited to $25,000 per financial year. However, if you're 50 or over, it's $50,000 per financial year until 30 June 2012.

Contributions made with after-tax money (including personal contributions) are limited to $150,000 per financial year. If you are under age 65, you can bundle these together by contributing up to $450,000 over three consecutive years. 

Save and claim a tax deduction

Are you a business owner or are you self employed? If your employment income is less than 10% of your total assessable income, then you may be able to claim a 100% tax deduction for your own super contributions. 

Make a spouse contribution

If your spouse earns less than $10,800 pa, you can make a $3,000 after-tax contribution to their super and receive a tax rebate of $540. This is a great savings incentive if your spouse is working part time, not at all or has retired. 

Get a boost from the government

If you earn less than $61,920 a year and make an after-tax contribution into super you may be eligible to receive a co-contribution from the government. Depending on your income level, the government will contribute up to $1 for every $1 that you invest in super (up to a maximum of $1,000). 

Consolidate to save

If you've had a number of jobs with different super accounts, you may benefit by consolidating your accounts into one super fund. You can save on fees which can improve your ability to accumulate more over the long term. The Australian Taxation Office can help you find your lost super accounts. 

Transition to retirement

If you are aged 55 to 60 you can access part of your super through a 'transition to retirement' pension. The income you receive through this type of pension is favourably taxed and can supplement your salary if you're still working.

You can also continue to contribute to super when accessing this type of pension. One of the most tax-effective strategies for people in their 50s, who are still working and on higher tax rates, is to salary sacrifice into super while accessing a part pension. This strategy can help reduce your taxable income, while at the same time providing you with a tax-effective income stream. 

What's next?

The strategies we've outlined here can be put in place through the Perpetual WealthFocus Super Plan and the Perpetual Select Super Plan, but as we've only covered the basics, it's important to seek advice about your own situation.

 

 

This article has been prepared by Perpetual Investment Management Limited (PIML), ABN 18 000 866 535, AFSL 234426. It is general information only and is not intended to provide you with financial advice or take into account your objectives, financial situation or needs. You should consider with a financial adviser, whether the information is suitable for your circumstances. Any information referenced in the article is believed to be accurate at the time of compilation and is provided by Perpetual in good faith. To the extent permitted by law, no liability is accepted for any loss or damage as a result of any reliance on this information. The PDSs mentioned above, issued by Perpeutal Superannuation Limited (PSL), ABN 84 008 416 831, AFSL 225246, RSE L0003315, should be considered before deciding whether to acquire or hold units in the fund. The PDS can be obtained by calling 1800 011 022 or visiting our website www.perpetual.com.au. No company in the Perpetual Group ABN 86 000 431 827 (Perpetual Group means Perpetual Limited and its subsidiaries) guarantees the performance of any fund or the return of an investor's capital. Past performance is not indicative of future performance.