July 10, 2020
Contributing to superannuation can be one of the simplest and yet most tax effective ways to build wealth for retirement. This is because the government provides a range of tax concessions to encourage superannuation contributions. The concessions include a tax offset of up to 18% for spouse contribution, the Federal Government co-contribution of up to $500 to your super account, as well as a tax deduction for eligible personal contributions.
Superannuation itself provides a concessionally taxed environment. Once you invest in super, your investment earnings are taxed at a maximum rate of 15%. When your super fulfils its ultimate purpose and you start drawing a pension from your super, the investment earnings are usually not taxed at all. The compounding effects of these tax benefits mean your super savings may grow faster than non-super alternatives, and this can have a positive impact on how long your money will last in retirement.
When making a contribution to superannuation, it is important to remember that the superannuation legislation outlines when a trustee can accept a contribution, including the requirement to meet the work test. You meet the work test if you have been gainfully employed for at least 40 hours in a period of not more than 30 consecutive days in the financial year. The work test must be met prior to the contribution being made (unless the work test exemption applies).
The good news is that from 1 July 2020 the age at which the work test starts to apply was increased from 65 to 67, which means that you can make contributions before age 67 without meeting the work test. If you were 66 or under on the 1 July this year, it may not be too late for you to add some money to your super.