From 1 July 2021, the Superannuation Guarantee Contribution (SGC) your employer makes on your behalf will be increasing from 9.5% to 10%. The increase is the first of a gradual plan to increase SGC to 12% by 1 July 2025. This is a very positive move towards individuals investing more into their super funds resulting in more funds for retirement.

At 1 July 2021, we will also see the concessional contribution cap move from $25,000 to $27,500 per annum. This allows you to capture an increase to your SGC, as well as making more room for deductible personal contributions (where you claim a tax deduction for your super contribution) or salary sacrifice contributions.

Additionally, we are also a few years into the concessional contribution catch up regime. 2018/19 was the first year we were able to utilize some of the accrued cap amounts. The arrangement allows you to access some of your unused concessional cap amounts from previous financial years. You must have a total super balance at 30 June of the previous financial year less than $500,000 to be eligible. This will allow you to use caps from up to five previous financial years from the 18/19 year. For example, if an individual only made concessional contributions of $10,000 in 18/19, they would be able to use their unused amount of $15,000 at some point over the next five financial years on top of their ordinary concessional contribution cap.

Where an individual chooses to make a deductible contribution to super, they will pay 15% tax within super on those amounts, this in turn reduces their personal taxable income where they are paying marginal tax rates, which could be up to 45%! That is an immediate tax saving of 30% and a great way to reduce your tax or possibly get a tax refund. Individuals who earn over $250,000 should also consider the impacts of the Division 293 tax when contributing to super.

Individuals who experience high income years due to earnings or capital gains can consider making a one off deductible super contribution to reduce the tax payable whilst boosting their retirement funds at the same time. This strategy could also be particularly useful for those who have breaks in work such as maternity leave.

This article was first published in the Winter edition of Client Alert. For more information, contact Lauren Lockhart on (08) 9227 7500.

Lauren Lockhart and HLB Wealth are an Authorised Representative of Paragem Pty Ltd ABN 16 108 571 875, AFSL 297276.

Disclaimer: The information in this article is general and does not take into account your particular circumstances. We recommend specific tax or legal advice be sought before any action is taken and refer to the relevant Product Disclosure Statement before investing in any product. Current at 20 May 2021.