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How can I save more super and what will I be taxed?

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I am self-employed and trying to build up my business but I am working in a local pub to ensure I don’t hit cash flow problems in the early stages of my business. That said, I have a number of super questions.

First, I am getting some compulsory super payments put into my super fund but I would like to put in some more. Will these be tax deductible for me? A mate said I can but he thinks there are some rules that govern this. And what happens if you put in too much super? Are there stiff penalties?

Your mate has given you some sound advice and it’s great that you’re thinking about building up your super. You’re entitled to make contributions, which are tax deductible for the self-employed  — these are called concessional contributions — provided that you earn less than 10 per cent of your total income from your job at the pub.

If you do earn more than 10 per cent of your income as an employee, any contribution you make will be taxed dollars and so won’t be taxed in your super fund. These are called non-concessional or undeducted contributions.

The normal caps apply to someone of your age on how much concessional contributions you can make. If you’re under 50 then your cap is $25,000. If you’re 50 or over, it’s now $50,000 but when the Gillard Government’s recent law changes are passed for 2012-13, if you’re 50 or over, the cap is $50,000 if your super balance is less than $500,000. If it’s over, you will have to revert to the $25,000 cap.

If you exceed your cap for concessional contributions, you will be taxed an additional 31.5 per cent for making the mistake and that’s on top of the 15 per cent you are slugged when you make a concessional contribution to your super fund. So the total tax of a goof-up is 46.5 per cent.

But wait, there’s more, and it probably won’t apply to you, but if you made the maximum non-concessional contribution of $150,000 in that year when you made the above mistake, the extra contribution carries over and becomes a non-concessional contribution. However, as you have already hit the cap with your non-concessional contribution, you will be hit with another 46.5 per cent tax taking the total cost of this super mistake to 93 per cent!

Now, the Government has proposed that if you make a mistake up to $10,000, it will let you off only once but this followed a Minister actually making a mistake!

For advice you can trust book a complimentary first appointment with Switzer Financial Services today.

Important information: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. For this reason, any individual should, before acting, consider the appropriateness of the information, having regard to the individual’s objectives, financial situation and needs and, if necessary, seek appropriate professional advice.

Published on: Tuesday, August 30, 2011

The Switzer Super Report is a newsletter and website for self managed super funds. With exclusive commentary from Peter Switzer, Roger Montgomery, Paul Rickard and Charlie Aitken the Switzer Super Report will help you maximise your after tax investment returns and grow your DIY Super. Click here for a free trial or subscribe today.

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