Caveo Partners chief economist and financial strategist Theo Marinis told news.com.au the cut off date for taking advantage of the tax break is early next week.
Aussie with Australian Retirement Trust supers, for example, have until June 22, to make a contribution for the 2020-21 financial year.
“Technically, if you’ve got a self-managed super fund, you could do it until June 30 because it’s got to be banked in and accounted for,” he said. “But with the large funds, whether it’s retail or industry funds, because they’re inundated with all these things coming in, they might bank it, but if they don’t process it before June 30, it won’t count until July.
“Generally about June 24 is okay. It gives them a few days to process it, but you’ve got to allow for weekends and things. I usually try to get our clients to get it in by next Monday at the latest, because it gives them a full week to process it just to be on the safe side.
“For those with balances below half a million, if you haven’t used your previous year’s concessional contributions, you can carry them forward for up to five years. So for people during Covid in 2020, 2021, when they weren’t working and didn’t put any money into super, they haven’t used their $25,000. They can do it this year.
“There’s a last-minute opportunity before June 30 to use your unused carry-forward contributions because they only carried them forward for five years. If you don’t use it by June 30, you can’t use it later, it’s a use-it-or-lose-it sort of thing.”
How the tax break works
Mr Marinis explained how the tax break worked.
He said if you make a catch-up payment to your super you need to speak to your accountant before you lodge a tax return.
“There’s a form you have to lodge. It’s a Notice of Intention to Claim,” he said. “You fill the form in. You say how much you want to claim. You lodge it with the super fund. They then take out the 15 per cent tax. and they issue you with a receipt, which the accountant uses to claim a tax deduction.”
He gave an example of how much someone could save on a $200,000 taxable income.
“If that person was to put $10,000 into super, you actually save $4,700 personally, but then you’ve got 15 per cent tax internally. So your net saving is $3,200,” he said. “It’s a 32 per cent return on a $10k investment. It’s just a big free kick, but it comes down to how much you can afford.”
Young Aussies the biggest winners
Mr Marinis said young Aussies on lower wages are best placed to take advantage of the tax break because of the effect of compounding on your savings.
“My advice is add to your super as soon as you can, as much as you can, for as long as you can,” he said. “Because the secret to super, and it’s no big secret, is that it’s just an investment structure but in a low tax environment — 15 per cent tax maximum, 10 per cent capital gains if you hold the asset longer than a year. And then compound interest does the lifting.
“Supposedly Albert Einstein said compound interest is the eighth wonder of the world. It’s basically interest on interest on interest. If you start putting away a hundred bucks a week at age 20 and then stop at age 40, you’ll be okay. If somebody hasn’t put in (until) 40, the amount they have to put in to catch up is astronomical because they’ve got less time.
“I wrote a book, I called it Sexy Super years and years ago. It’s not sexy, but it is because there’s nowhere else you can invest and pay 15 per cent or 10 per cent tax while you’re employed, and 0 per cent tax when you’re over 60. This provides retirement income for the rest of their lives and tax-free income in retirement.”
Older couples could boost their super by $1 million
He said older Australians could benefit from the tax break too, giving an example of a couple who could very quickly see a boost of over $1 million to their super balance.
“You can contribute potentially to super until 75,” he said. “That’s non-concessional after-tax contributions. So if you’ve got for example, with the budget changes, if in the next two years people start selling property because capital gains are no good anymore, you can start to contribute those funds into super.
“From July 1, you’re going to do $130,000 of non-concessional payments per financial year, but they’ll let you do three years in money to bring forward. A couple can contribute $130,000 in June, $390,000 in July, they can get $1.04 million into super and pension very quickly.”
He said Aussies shouldn’t panic if they miss the upcoming contribution deadline.
“It’s a great opportunity, but no need to panic,” he said. “Especially no need to panic if you make a mistake towards the end and it doesn’t work.”
