Tax evasion is illegal, tax minimisation isn’t. The vast majority of people with an income have to pay taxes but there are ways to minimise your liability. A simple tax minimisation strategy that should always be utilised is making concessional contributions to your superannuation.
Individual income tax rates start at 19% for every $1 above the $18,200 threshold. If you earn below this threshold in a year then you can skip straight to Super Co-Contributions, otherwise keep reading. According to Living in Australia, the average salary in Australia was $78,832 in the 2nd quarter of 2016. This means that the average Australian is being taxed at the marginal rate of 32.5%.
Employers are currently required to pay their staff a minimum of 9.5% of their salary towards superannuation. Concessional contributions are voluntary additional payments made into your nominated super fund that are taxed at a preferential rate of 15%. These contributions are normally salary sacrificed (paid before tax) and are subject to a yearly cap (see table). From 1 July 2017, the general concessional contributions cap will be $25,000 for everyone, irrespective of age.
It is possible but not recommended to exceed the concessional contribution cap, as this would mean that you are taxed at your marginal tax rate plus an interest charge instead.
Note: From 1 July 2017, the annual non-concessional contribution cap is being reduced from $180,000 to $100,000 and individuals with a super balance of $1.6 million or more will no longer be eligible to make non-concessional contributions.
Wait, there’s more: Super Co-Contributions
Personal super contributions that are made from your after-tax pay may qualify for government co-contributions. Under this initiative, the government will make matching contributions up to a maximum of $500 as long as you are earning less than $51,021 per year.
Low Income Superannuation Tax Offset (LISTO)
LISTO is another initiative where the government will refund the 15% contributions tax deducted from your super account, up to the value of $500, if you have earned $37,000 or less and have made concessional contributions. It is currently known as the low income superannuation contribution (LISC) but will be known as LISTO from 1 July 2017.
By putting more of your pay into super, you are able to pay less tax up to a certain extent. It’s a great way to boost your retirement savings and once your fund moves into pension phase, the withdrawals that you make along with any earnings on investments within the fund are tax-free. A key question to ask yourself now is: Do you want to pay 32.5% or 15%? Start contributing! 🙂