Pete Pennicott, co-founder and principal adviser of Pekada, believes that a significant mistake people make is ignoring superannuation when it comes to EOFY planning.
“Super is still the most efficient way to compound your wealth if you’re a higher-income earner,” said Mr Pennicott.
“It sometimes gets a bad rap as the goalposts keep changing, but superannuation is and will likely remain the best place to compound your investment returns,” continued Mr Pennicott.
How can superannuation be used
In an effort to encourage individuals to be more self-sufficient later in life, the Australian government has numerous superannuation concession schemes. While this is designed to help save for the future, it has the added tax benefits in the short term.
“Superannuation is under-used as a way to manage your tax liability. You have up to $25,000 in concessional contribution cap… Instead of paying your marginal tax rate, you’re only going to pay 15 per cent, up until $250,000.
Couples can also benefit combined if one couple earns significantly more than another partner. According to the ATO, if one spouse earns low or no income, the government allows for a tax offset of up to $540, if the spouse makes contribution to their complying superannuation fund.
“If you’re earning up until $40,000, you can make an eligible spouse contributions and get a tax offset of up to $540. It doesn’t sound like much but you can think of that repeating each year and its these consistently add up over the years. A tax offset is a lot better than a tax deduction because its dollar for dollar,” said Mr Pennicott.
While superannuation is a tax deduction, it can only be used as one if the individual alerts the Tax Office about their intent to claim it as a tax break. Knowing what kind of super contribution is being made is important as non-concessional contributions are not tax deductible. This mistake only happens with manual contributions as salary sacrificing.
“A lot of the time people lodge or put in a super fund expecting it to be a personal deductible contribution but forget to lodge a notice of intent to claim a tax deduction, meaning it’s a non-concessional super contribution,” said Mr Pennicott.