Source: The Age - Business Day
Written By: Annette Sampson
What is super, anyway? It's a retirement savings system with its own tax regime and regulations. Investments in super carry tax concessions to encourage us to save and have regulatory protections to ensure your money is there when you need it. Beyond that, super is like any other investment. Your fund will typically invest in a mix of assets that are likely to grow over time (such as shares and property) and assets that provide shorter-term security (such as bonds and cash).
Can I contribute to super? If you're under 65, you can contribute whether you're working or not. If you're aged 65 to 74, you can still contribute but you must work 40 hours in 30 consecutive days in the financial year in which you want to make the contribution. But there are limits on how much you can squirrel away. Tax-deductible or "concessional" contributions can't exceed $50,000 a year if you are under 50. Until June 30, 2012, those 50 or older get a higher annual limit of $100,000. (Both limits will be indexed.) That limit applies to all contributions made on your behalf, so if you're receiving super from, say, two different employers, the onus is on you to stay within the cap.
After tax or "non-concessional" contributions are limited to $150,000 a year (also indexed), though if you're under 65, you can contribute up to $450,000 in one year under averaging provisions that allow you to make three years' contributions in one hit. Once you turn 65, averaging is no longer allowed, though you can still contribute up to $150,000 a year until 75 if you meet the work test.
Can I claim a tax deduction on my super contributions? You can claim a tax deduction on your personal super contributions only if less than 10 per cent of your assessable income plus reportable fringe benefits comes from work as an employee. So the self-employed and those not working can usually claim a full tax deduction on their contributions up to the $50,000 or $100,000 caps. If you're an employee, your employer can claim a tax deduction on contributions made on your behalf. So one way to boost your tax-deductible contributions is to ask your employer to put aside more super from your pre-tax salary. This is known as salary sacrifice.
How does salary sacrifice work? You agree with your employer to trade off part of your pre-tax salary in lieu of higher employer super contributions. Let's say you're on the 41.5 per cent marginal tax rate. If you earn $1000 before tax, you'll receive $585 in your pocket if you take the money as salary. But if you ask your employer to contribute that $1000 to super instead, you'll pay just 15 per cent tax on the super contribution - leaving you with $850 of retirement
