Super tax breaks

One of the key benefits of superannuation is the generous way it’s taxed. Any money that goes into your super is taxed lightly as are any earnings your super accumulates. Rounding out its tax-effectiveness is the fact that when you retire the money you take out of your super is also taxed at a low rate. In fact, no other legal investment strategy attracts such low tax rates as super.

Money Going Into Super

While the 9% automatically taken from our salaries will ensure we aren’t broke in retirement, it probably won’t be enough for those who like to enjoy the good life. The government has therefore set up a range of tax friendly ways we can put additional money into our super accounts.

Salary Sacrifice

An easy way to boost the money available to us when we retire is to salary sacrifice a part of our income into super each payday. This strategy increases your super but it also has the added benefit of reducing your taxable income. If you have a yearly salary of $80,000, for example, and you salary sacrifice $10,000, you will only be charged income tax on $70,000.

ATO’s rules on salary sacrificing

At the moment, if you are under 50 you can salary sacrifice up to $25,000 each year into super, if you're over 50 this figure rises to $50,000.

Spouse Contribution

If your partner is not working or on a low income, you can make a contribution to their super fund and you may be eligible for a tax offset. You may be entitled to a maximum tax offset of up to $540 each financial year on contributions up to $3,000. It’s advisable to check with your accountant or financial adviser to see if you can take advantage of this incentive.

ATO’s rules on spouse contribution tax offset

Earnings On Your Super Investments

As far as the government is concerned, any earnings made from out-of-super investments form part of a person’s taxable income. For example, any money you earn from interest in a savings account will need to be added to the yearly salary the ATO taxes you on. When you consider that high income earners in Australia pay up to 45% of every dollar earned to the tax department, it’s worth looking at alternative investment strategies.

In contrast, any earnings from investments held in a super account are lightly taxed. A maximum rate of 15% applies to the investment income earned by your fund (10% on capital gains). As this rate is lower than many people’s marginal tax rates it means that investing in super ensures more of your money goes to work providing for your retirement rather than being lost to the tax man.

Access Your Super Tax Free From Age 60

When you’re ready to retire, your super continues to deliver valuable tax savings. From age 60, your super can be accessed tax-free which easily beats the amount of tax you will pay on accessing money tied up in out-of-super investments.

Less Tax Today Means More Money In Retirement

Ensuring financial security for 20 to 30 years of post work life is understandably a big concern for many Australians. The way the super system in Australia is set up makes it the most tax-friendly strategy to building your wealth. Quite simply, the money you don’t lose to the tax department can be spent on enjoying your retirement.