Searching for ways to save some TAX?

Posted on 01/12/2016

So, HOW CAN YOU PAY LESSER TAX AND SAVE MORE FOR YOUR RETIREMENT?

Have you ever wondered about this? And then thought Super contributions could be the best way to start saving more for retirement rather than paying the humongous amount of tax.

If you have not, think now! For, Super gives you incredible tax benefits.

At some point in time, everyone would ask this one question to their accountant which is “How can I save tax?” And the practiced response they get is “Have you ever considered Super contributions?”

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Super contributions and Tax benefits:

Super contributions provide you with some uber-cool tax benefits and the best part is your wealth remains undiminished. All you are doing with the super contribution is that you are diverting some of your capital to a super system where it is considered as an investment which can be enjoyed when you retire. Simply put, this contributed sum remains yours rather than the governments.

What exactly is your tax benefit?

Let’s say $200,000 is your income per annum, and you are contributing $10,000 for your personal tax or super contribution.

Have a look at the table below to find the difference between the two:

 

PERSONAL TAX SUPER CONTRIBUTION
You contribute : 39% You contribute : 15%
39% of $10,000 : $3,900 15% of 10,000 : $1500
You pay : $3,900 You pay : $1,500
You get : $6,100 You get : $8,500

 

Difference amount: $2,400.

You can invest the same in your super funds and guess what; the benefits yielded by this investment in future will also be taxed at the rate of 15%. This is way lesser than the non-super investments.

Are there any downsides to this?

Yes, there is. There’s one element which could be a major pitfall to super contributions which is the inaccessibility to super funds until the release conditions are met. Mostly, this condition of release can be met when one reaches the preservation age which is 55. For young people, the dilemma in choosing either super investments or personal tax can be quite annoying.

Are these tax benefits lucrative all the time?

Briefly put, no. These tax benefits are not applicable for everyone. For people with income below $18,200 will be worse as the 15% contributions are exponentially higher than the 0% personal tax. For people with income between $18,200 and $37,000 have only a slight difference between the contributions rate and the tax rates. For people with income over $180,000 have very good advantages of choosing super contributions over personal taxes.

Things to bear in mind:

You need to be watchful about the amount you invest in super contributions. You need to ensure that your investments do not exceed the concessional contributions cap to avoid any repercussions.

You also need to pay attention on where you make the investment. Check whether contributions go to funds that yield good returns and has reasonable fees. Bear in mind, a tax saving can be easily destroyed by the poor performance of the fund.

Ergo, it is always good to do a little research and get some professional guidance before you decide anything in this regard.

Call Joyce at +1-516-717-2049 to explore more about how Velan can help you.

Topics: Taxation

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