18 JUNE 2010

Reduce Tax and Save for Your Retirement…

The end of another financial year is less than two weeks away.

It’s important that you review your finances before 30 June so as you don’t miss opportunities to reduce your tax while building your wealth.

Irrespective of recent market conditions, super is still the most tax-effective way to save for your retirement.

One of the best ways to do this is via concessional contributions to super.  The way in which these contributions are made can differ dependent on whether you are an employee of a company or self employed.

There are limits on the level of concessional contributions that can be made each year. The current limit is $25,000 p.a. unless you are 50 or older, in which case your limit is $50,000 p.a.  Please note that at present, this transitional limit will only apply until the 30th of June 2012 when those under 50 revert back to a then universal limit of $25,000 p.a.

There are numerous benefits of making concessional contributions to the superannuation environment

• Firstly, you’ll be bumping up your super balance
• Secondly, you reduce your tax liability.

Instead of paying tax at your marginal rate, the amount you salary sacrifice becomes a taxable contribution received by the fund and taxed at a rate of 15%.

The table below details the arbitrage obtained by contributing money to super as a concessional contribution rather than having those funds taxed as ordinary income, dependent on your marginal tax rate:

Furthermore, any income earned on the investment is taxed at a maximum rate of 15%.

• Finally, once you turn 60, payments from your super fund are tax-free.

For employees: Salary sacrificing

Salary sacrificing involves diverting pre-tax dollars from your employment salary into contributions into your super account.

There isn’t much that can be done if you are in this position now as you have already received your employment salary over the financial year.

However, there is no better time to commence a valid salary sacrifice agreement than from the 1st of July 2010.  This means that you can take advantage of either the $25,000 limit for those aged less than 50 or the transitional $50,000 limit if you turn 50 between the 1st of July 2010 and the 30th of June 2011.

For those self employed: Personal deductible contributions

If you are self-employed, substantially self-employed, or under 65 and recently retired, you may be eligible to make a personal deductible super contribution.

By making a personal deductible contribution to super, you can reduce your taxable income and therefore decrease your personal tax liability.

This strategy can also apply if you have sold an asset during the financial year and realised a significant capital gain.  You may be able to offset the capital gain with a personal deductible contribution if you are eligible.

You should look to confirm your eligibility to make a personal deductible contribution with your financial adviser before making it.

Additionally, if you would like any further information about how to go about making concessional contributions then please do not hesitate contact us.

Patrick Malcolm
Senior Para-Planner
Authorised Representative No. 278061

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DISCLAIMER:  This document is not an offer or invitation to any person to buy or sell any interest in or deposit funds with any institution.  The information here is of a generic nature, and does not take into account your investment objectives or financial needs.  No person should act upon this information without firstly seeking competent, professional advice specifically relating to their own particular situation.