Tax facts: What is and isn’t calculated and how to maximise your return

Question 1. If my daughter earns less than $20,000 in the 2022-23 tax year, and I make a non-concessional contribution to her super fund, will she receive the government co-contribution? Or, does she have to make the non-concessional contribution herself to qualify for the government co-contribution?

The government co-contribution is a great way to get the government to help boost your retirement savings.

Given your daughter’s level of income, if a $1000 contribution was made, she could receive a $500 government co-contribution. That’s a government-guaranteed 50 per cent return instantly.

Of course, she needs to wait until retirement before accessing the funds, though. When you also consider the impact compounding will have on the $1500 it will grow to a very tidy sum by that time, so good on you for thinking about it now.

One thing I would point out for others thinking about making this contribution for their children is that there is an eligibility rule where you must earn at least 10 per cent of your overall income from employment (or self employment). So, if your child does not work, this strategy is not applicable.

To answer your question directly, she does need to make the contribution herself, therefore you would need to give her the funds and then she makes a non-concessional contribution to super.

Question 2. I’m on a full pension, however, this tax year I will earn $14,000 as I work part-time. I’m eligible for salary sacrificing up to $9100. Will I incur a tax bill?

If you are on a full age pension, which is taxable, and earn $14,000 in salary, your total taxable income would be equal to roughly $40,500.

After taking into account the low income and senior and pensioners tax offsets, your tax and Medicare liability would be about $2840.

By salary sacrificing $9100 you will reduce this to about $600 but have to pay contributions tax on your super contributions of $1365.

Therefore, this strategy would save you income tax of $2240 but the net tax benefit is $875 after allowing for the contributions tax ($2240 minus $1365).

Still very much a worthwhile strategy.

If you are under 71 at the end of the financial year it’s also worth considering making an after-tax (non-concessional) contribution to super of $1000 as you could also potentially benefit from the government co-contribution. If eligible, the government will contribute up to $500 in a co-contribution.

Note for the purpose of the above calculations I have assumed you are single – however, you should seek personalised tax advice over your exact situation.

Question 3. I’m a 75-year-old female pensioner and receive a full pension. I have approximately $170k in an investment. I rent my home. I draw down $2000 per month from a super fund. Do I need to put in a tax return?

While the age pension is taxable, your superannuation income payments should be tax free.

Unless you were earning substantial taxable income from your investments then the answer is probably no.

For 2021-22, I assume you are a single age pensioner, if you had taxable income above $32,279 (this includes age pension and investment income combined but not superannuation drawdowns) then a tax return is required.

There may be other reasons a tax return is required and the ATO has some guidance on its website.

If you do not have to lodge a tax return but you receive some franked dividends from your investments, you can apply with the ATO to obtain a refund of the franking credits without having to submit a full tax return.

Question 4. We are age pensioners with ‘other’ income and the Medicare levy. Is the Medicare levy based on income from employment only or any source of income – pensions, shares, super, investments, etc?

The Medicare levy is based on all of your taxable income. It includes age pension, salary and investment earnings but generally not superannuation income payments as these are tax-free from age 60.

For couples that are over age pension age you do not pay the Medicare levy until your taxable income is greater than approximately $51,400 and the full rate of 2 per cent does not kick in until a combined taxable income of $64,251 (for 2021-22).

Craig Sankey is a licensed financial adviser and head of Technical Services & Advice Enablement at Industry Fund Services

Disclaimer: The responses provided are general in nature, and while they are prompted by the questions asked, they have been prepared without taking into consideration all your objectives, financial situation or needs.

Before relying on any of the information, please ensure that you consider the appropriateness of the information for your objectives, financial situation or needs. To the extent that it is permitted by law, no responsibility for errors or omissions is accepted by IFS and its representatives. 

The New Daily is owned by Industry Super Holdings

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