Are you a high wages owning employee or a self-employed business owner who paid too much tax last year? There is an effective way to reduce the tax liability by directing the income into your super. The before tax income paid into your super fund under the concessional cap ($30,000 for ages under 49 and $35,000 for ages over 49 in 2016-2017) will be only taxed at 15% which is much less than most people’s margin rate (37% for taxable income higher than $80,000). The amount of the income paid into your super is deductible to your total taxable income.
Tina aged 45 had a taxable income $100,000 for 2015. She directed before tax income $20,000 into her super fund. Therefore, she will be paying $3,000 tax at her super fund (15% on $20,000) and receive $17,000 in the fund. In turn, her taxable income will be reduced to $80,000 after deduction of the super contribution. Without this arrangement, she will be liable for $7,400 tax (37% margin rate on $20,000) plus tax on $80,000.
Now the result looks fantastic but how can we direct the income into our super fund? If you are a wages employee, on top of the Superannuation Guarantee your employer paid to your super fund (9.5% in 2016-2017), you can arrange salary sacrifice with your employer up to the concessional cap. Please note the Super Guarantee paid by your employer is also counted towards the concessional cap.If you are self-employed business owner, you can direct your taxable income at your discretion as long as it’s under the concessional cap.
In Pitt Martin, we do not only provide tax return service to our clients but we also give them advice and tailor tax plan for them after the tax return to make sure they are legally paying as less tax as possible. Call us today on 02 9221 3345 or email to firstname.lastname@example.org.
Disclaimer: This article is not providing a formal advice and may not suit to all scenarios. Please make an appointment with us to discuss.
Experienced Partner with a demonstrated history of working in the accounting industry. Skilled in Tax, Accounting, Business Advisory and SMSF. Strong entrepreneurship professional with qualification Master of Professional Accounting, CPA Public Practice, Registered Tax Agent, NSW Law Society External Examiner and Limited AFS License. Specialised in SME, tax planning and international tax, he helped client save ample money and create wealth.