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Tax Time Strategies – Superannuation

by | Sat, Jun 11 2022

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It’s always a good idea to think about tax strategies in the weeks leading up to the end of the financial year. What are some things we can do now to get ready in time? Alex Cook from Wealth With Purpose says that we should all be paying closer attention to our superannuation.

The majority of us have superannuation, and tax time can be an excellent opportunity to top it up. There are a variety of tax benefits associated with super, and also with things like prepaying our income protection or investment loans. Alex believes that for those in the workforce, super should be the priority.

“Super is quite straightforward,” says Alex. “A concessional contribution simply means that somebody is claiming a tax deduction and getting a concessional tax benefit. For example, your employer has to pay 10%, so they can claim a tax deduction. Or you can put your own money in and also claim the deduction.”

If you’re getting closer to retirement, give some serious thought to topping up your super contribution. It will help reduce your income tax in a legitimate way, which is something most people are hoping to do. If you’re a low-income earner, it could be worth looking into the government co-contribution.

“This is where you put in up to $1,000 into your superannuation,” says Alex, “and the Government will match it with another $500. It’s essentially a 50% return on your investment. It’s a fully automated system, so your only responsibility is to put the money in. This is a type of non-concessional contribution.”

Another good strategy can be to put money in your spouse’s super fund. There’s a limit to how much you can contribute, but the general amount is $3,000. The recipient spouse must earn under $40,000, and the contributing spouse gets a $540 tax rebate. It’s essentially a free rebate from the ATO.

“Think of your super as a tax structure, separate it from being an investment,” says Alex. “Super is a low tax structure. It’s only 15% during your working life, and when you retire it becomes tax-free. The other very important issue is where do you want the money invested?”

We’ve had a very volatile start to the year, with stock markets falling significantly. But when you think of super, you should take a longer-term view. You should be taking a ten plus year perspective on it, but you may need to adjust your risk.

“If you’re 65, then maybe you do need to consider how much risk you take,” says Alex. “But if you’re 35, then you really should have a 20-year view. Don’t be fazed by what’s going on in the stock market. Stick to good quality investments, and have a long term perspective towards your superannuation.”

Alex also mentions there are a couple of downsides to superannuation. One is that you can’t access it until you reach the preservation age, and the other is the potential for legislative changes. Super is not always the perfect investment solution, but we do have a very good system in Australia.

As Christians, how we spend our retirement is another question we all need to grapple with. We are bombarded with messages through the mainstream media about what the future should look like. But we have to ask, is that biblical and is that wise stewardship?

“Generally speaking, the Bible is actually silent on this concept of retirement,” says Alex. “But if we look at the model God gave us in Genesis, we work six days and rest on the seventh. We were built to work, but that desn’t necessarily mean that we have to work for money,”

The point is that every day you’ve got to get up on purpose and live a fruitful life. A life focussed on Christ and focussed on building His kingdom. We should be thinking about how are we going to run our race for Jesus to the end, but still prepare for retirement financially.

Psalm 71:18 says, ‘when I’m old and grey, do not forsake me, my God. Until I declare your power to the next generation, your mighty acts to all who are to come.’

“Our legacy as believers is not just having a cushy and easygoing retirement,” says Alex. “Our legacy is to pass on the good news of Jesus to the next generation.”