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Ask the Expert: Low-income super benefits, inheritance and a fair go

Low-income earners often don’t have the same options with super and retirement, one reader writes.

Low-income earners often don’t have the same options with super and retirement, one reader writes. Photo: Getty

Question 1

  • How do you take up unused concessional contributions? My $60k income doesn’t generate a high tax bill. How can a lower-income worker really benefit?

That a very good question.

Superannuation is a great vehicle to save for retirement and offers generous tax savings. However, one legitimate criticism is that it does favour higher-income earners and/or those who already have additional funds to contribute.

What you are talking about is the ‘carry forward’ concessional contribution rules.

Concessional superannuation contributions include:

  • Employer SG contributions
  • Salary sacrifice contributions
  • Personal contributions where you claim a tax deduction.

For 2024-25 the annual concessional cap (the maximum amount you can contribute as concessional contributions) is moving to $30,000.

However, the carry-forward concessional contribution rules (sometimes called “catch-up concessional” contributions) may allow you to make concessional contributions above the standard $30,000 concessional cap, by allowing you to utilise any unused amounts of concessional cap from the prior five years.

The other requirement is you must have a total super balance below $500,000 as at the previous June 30.

Your individual carry-forward concessional contribution cap amounts and your total superannuation balance for the previous June 30 is available to look up in the superannuation tab on ATO Online in MyGov. As per below:

For someone with a low to middle income, making large concessional contributions may not make sense.

Concessional contributions are taxed at 15 per cent rather than someone’s marginal tax rate.

The bigger the marginal tax rate you are on, the bigger the tax benefit there is in making concessional contributions.

Perhaps this strategy is just not for you.

The strategy often does make sense in the following situations:

  • You start receiving a higher salary or bonus
  • You sell an asset (property or shares etc) with a large capital gain attached
  • You return to work after a career break or maternity/paternity leave.

This doesn’t mean making contributions to super isn’t appropriate for people on low to middle incomes.

There are many benefits to contributing to super before tax and making after-tax contributions (not claiming a tax deduction on the contributions) is still a great way to save for your retirement.

If you need assistance in working out the right strategy for yourself, speak to your fund and check if they offer financial advice to their members at no additional cost.

Question 2

  • My super on death passes to wife. (Understand all that). What happens next tax wise when husband has passed on, super to wife who then years later passes on and leaves super to two non-dependent adult sons? What tax must be paid before funds go to sons?

Yes, you can nominate your partner to receive your super when you die, and no tax is payable.

Your partner then has the option of taking the money out of the super system altogether, or to start to receive an income stream from it (they can’t just leave it in a superannuation accumulation account).

If your partner does choose to have the funds in an income stream account, and if there is still money left when they die, then the ‘taxable’ component part of the benefits would be taxed at 17 per cent if paid to adult non-dependent children.

You can check with your super fund what components currently make up the balance of your fund.

If you were concerned about this tax, then you or your wife could withdraw all funds from super before death, although this is not always possible.

She could re-marry and pass the benefits on tax free to her new partner, but I’m guessing you may not be happy with that.

A popular strategy is the cash out and recontribution strategy, which reduces this tax. I have covered that previously here.

Question 3

  • Where do I start? I’m 67, retired but cannot claim age pension or even a Seniors Card because hubby earns too much. We had a failed business because of Covid and nearly had to go bankrupt.  We rent and still have outstanding company debt, which makes things very hard for us financially yet I can’t get the pension. In the meantime, friends who have a house with no mortgage, no debt etc are getting the pension. Just doesn’t seem fair? 

Whilst I don’t know your situation intimately, I agree with things not always being fair.

In Australia home owners are given very generous treatment under both the tax and social security system when compared to renters.

Home owners with multimillion-dollar homes can still receive the age pension and don’t pay any tax on the sale of their home.

And with homes now being so expensive, it’s harder for non-home owners, especially younger people, to get into the market.

On a positive note, your husband seems to be on a high income and hopefully you can use this to turn your situation around.

It sounds like you would benefit from receiving personalised financial advice.

Craig Sankey is a licensed financial adviser and head of Technical Services and 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.

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