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Minimize income tax - Voluntary Additional Super contribution

A legitimate way to minimize your income tax is to contribute to your super before 30 June.


Voluntary Concessional Super Contribution


We would like to make you aware of the ‘Voluntary Concessional Super Contribution’ which allows you and your business to claim an income tax deduction at the end of financial year (the Concessional Super Contribution Cap for FY2024 is $27,500). This cap applies to the yearly total of Employer Super Guarantee Contribution and Personal Concessional Contribution.


The income tax saving will vary subject to the difference between your individual marginal tax rate and the super funds’ flat tax rate (15%). Below is an example of how Voluntary Concessional Super Contribution helps to save overall income tax between you and your super accounts.


Example:

James runs a small business in the financial year 2024 which makes a net profit of $100,000. During the financial year, the business has paid James a salary of $50,000 which comes with the compulsory Employer Super Guarantee Contribution of $5,500.


James’ Concessional Super Contribution Cap for FY2024 is $27,500 which allows him to voluntarily contribute up to $22,000 on top of his Employer Super Guarantee Contribution into his super fund before 30 June 2024.


James decided to take advantage of the whole unused concessional contribution cap and contributed the additional $22,000 as the Voluntary Employer Super Contribution into his super fund before 30 June 2024 through his business.


The additional $22,000 Voluntary Employer Super Contribution is claimed as a tax deduction by his business at the tax rate of 25% in its FY2024 tax return. Tax credit for this is $5,500 (25% x $22,000).


In the super fund, the $22,000 super contribution is taxed at 15% or $3,300.

Overall, as a group, James and his super account saved $2,200 in income tax.

Effectively, James and his super account have saved 10% of the $22,000 business profit. This is more beneficial than keeping it in a saving account outside of super or a Mortgage Offset account which may only save him about 6%-7% currently (or $1,320-$1,540).


Carry-Forward Concessional Contributions


You may be able to contribute more than your annual concessional super contribution cap for the current financial year if you haven’t taken advantage of the full concessional contribution caps from the previous financial years.


If you have unused concessional cap amounts from previous financial years, you may be able to carry them forward to increase your contribution caps in later years. You will be eligible to do this if you have both:

  • A total super balance of less than $500,000 at 30 June of the previous financial year.

  • Unused concessional contributions cap amounts from up to 5 previous years.


I hope the above information is beneficial and provides you with an insight on how you can achieve savings on your income tax by contributing more into your super account.


What you need to do


If you intend to contribute additional super before 30 June and need our help to check your unused concessional cap amounts, please reply to this email or call our office immediately at (02) 9145 8516.


Author: Charlie Dang CPA (Principal of HQD Tax Solutions)

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