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Save $40,925 in tax! High Income Earners starting work in Australia or returning to work will want to read this....

Updated: May 6

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It is nearing tax time, so tax minimisation strategies start to become the one of the most common questions we receive.


With the introduction of Carry Forward Catch Up Superannuation Contributions, High Income Earners that haven't been working much or at all in recent years have a huge tax minimisation strategy available to them! These people are typically:


  • Overseas arrivals that have moved across with particular skills. They are often in the medical field, software engineers, executives etc.

  • Locals that have taken a number of years off to raise kids before returning to their professional level roles.


The beauty of this strategy is that not only do you get a huge tax break, but often these types of people will have an active desire to increase their superannuation.

If you are a new arrival in Australia and planning to stay long term, of course you will want to catch up with regards to your retirement savings. For parents, this is also very important and very topical following International Women's Day whereby the government announced it would also legislate for superannuation to be paid on parental leave. These catch up contributions can further assist with bridging the gender superannuation gap.


So, how does it work?


Let's say you have worked the entire financial year and you are earning $250,000 plus super. This means you would receive $27,500 in employer contributions (incidentally the 2023/24 financial year cap). However, you will note that you could have $130,000 in left over cap space if you have not worked in those years. For overseas arrivals, it does not matter if you weren't even in the country for those years, you still get the carry forward cap space.

 

Yearly Cap 

Contribution 

Left Over 

2018 - 2019

$25,000

$0

$25,000

2019 - 2020

$25,000

$0

$25,000

2020 - 2021

$25,000

$0

$25,000

2021 - 2022

$27,500

$0

$27,500

2022 - 2023

$27,500

$0

$27,500

2023 - 2024 (expected)

$27,500

$27,500

$0

Total

 

$27,500

$130,000

Now, if we show a comparison between using the $130,000 contribution cap space and not, you can see a whopping income tax saving of $60,425 and $40,925 net when including the additional super tax at 15%.


 

Without Concessional Contributions

With Concessional Contributions

Assessable Income



Salary

$250,000

$250,000

Total Assessable Income

$250,000

$250,000

Deductions



Concessional Contributions

$0

$130,000

Taxable Income

$250,000

$120,000

Income Tax & Medicare Levy

$92,292

$31,867

Tax on Super Contributions

$0

$19,500

Total Tax Payable 

$92,292

$51,367

Net Tax Saving

$40,925


Is this strategy for everyone?


Clearly it is not because firstly, you need to have $130,000 available to contribute into superannuation. Secondly, the funds are locked away until your preservation age, so if you are quite young, you may prefer to have access to the funds over the generous tax concessions.


However, from a dollars and cents perspective, this is one of the most powerful wealth building strategies. You can receive a very large tax discount and continue to benefit from the impressive long term returns of superannuation which are only taxed at a tiny 15% per annum.



The purpose of this content is to provide general information only and is not personal financial advice. 


To book in an obligation free initial appointment with us and receive tailored personal advice, please visit www.sourcewealth.com.au

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