Imagine waking up on 1 July 2024 knowing you’ve slashed your tax bill and supercharged your superannuation.

For those of you who have already had their end of year tax planning meeting, we have already looked at the benefit of you doing just that,  prepaying super!

Sounds too good to be true, RIGHT?

But it isn’t!

Thanks to the Commissioner of Taxation’s guidance, businesses and taxpayers can now prepay deductible and after-tax contributions into superannuation funds without facing penalties.

This strategy not only reduces tax liabilities but also maximises the funds invested in a low-tax environment.

Let’s break it down for those of you who have not yet had your tax planning meeting.

Typically, taxpayers make their super contributions through direct contributions, salary sacrifice, or personal deductible contributions.

This caps out at $27,500 for concessional contributions for the 2024 income year but come 1 July it is $30,000.

But here’s the kicker: you can prepay next year’s contributions. For instance, you can claim a $27,500 deduction for this year and prepay $30,000 for the next, giving you a hefty $57,500 tax deduction in a single year!

How Does It Work?

Prepayment Case Study

Take John Smith, a 45-year-old plumber whose business is booming. John has spare cash and wants to maximise his super. Normally, he would contribute $27,500 and call it a day. However, his savvy accountant (me) advises him to prepay the following year’s $30,000 concessional contribution cap. By doing this in June 2024, John claims a $57,500 tax deduction. His accountant records in his super fund’s return $27,500 for the 2024 income year and parks the $30,000 in an ATO-approved contributions suspense account until the 2025 income year. This strategy ensures John maximises his contributions without breaching the cap.

NOTE: In reality the maximum prepaid amount of $30k will be reduced by the expected amount of super contributions that musty be made by way of Super Guarantee Levy on your wages/salary.

Timing is Everything

This strategy only works in June of each financial year, as contributions can be held in a suspense account for a maximum of two months.

It’s also viable for after-tax or non-concessional contributions, allowing super fund members to contribute over $480,000 under certain conditions.

This is great if you all of a sudden need to put a heap more cash into super, for example to buy or make a deposit on a business or residential property.

Who Can Benefit?

Whether you’re an employee with a high salary, a salesperson with substantial bonuses, a family trust beneficiary, or someone with capital gains from selling shares or property, this strategy is for you.

Essentially, anyone up to the age of 75 with taxable income can benefit.

NOTE: If you don’t have a self-managed superannuation fund, it would be prudent to ring up your retail or industry super fund to check that they accept prepaid super contributions as, to our knowledge, regretfully most don’t have the systems for it.

Want to Pay Less Tax in 2024?

If you’re intrigued by the potential tax savings, If you haven’t already, consider having a discussion with us.

We’ll dive deep into your super and taxes to see how this strategy can benefit you and provide a quote for implementation. Remember, it’s your choice to save tax or not.

If you already have a SMSF then its quite a simple strategy and we can do all the SMSF paperwork to comply with legislation.

If you don’t have your own SMSF and your retail or industry fund can’t accept prepaid contributions, then you may want to consider the benefits of your own SMSF and if a SMSF is right for you.

Conclusion

By leveraging this smart and legal strategy, you can take control of your tax liabilities and boost your super investment portfolio and ultimately your retirement savings—truly a win-win.

For detailed guidance and a deeper dive into the specifics, call me to organise an appointment so I can provide you with personalised advice tailored to your specific situation.