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Should I pay some extra money into super or pay off the house?

    Making the most of those spare funds

    ... should I pay some extra money into super or pay off the house?

Question 1:

Hi, I am 61 and plan to retire at 67. I currently have $250,000 in super and contribute $25,000 before tax and will commence adding $300 per fortnight after tax from July 1.

My question is, can I claim a tax deduction for the after-tax contributions?

I also still owe approximately $250,000 for my home and currently pay twice the monthly loan payment. Should I contribute the $300 extra to home loan or super. Loan interest is 2.34 per cent. Thanks for your help.

Salary sacrifice, employer [superannuation guarantee] SG contributions and personal tax-deductible contributions are all considered ‘concessional contributions’.

The annual cap on concessional contributions is $27,500 (2021-22), so it sounds like you are getting very close to this amount.

That said, as you have less than $500,000 in super, you can exceed the annual limit by using any unused concessional contributions from previous years.

These are called ‘carry-forward’ contributions and I have discussed them in a previous article.

However, given the level of contributions you are making you may have very little carry-forward contributions available.

I strongly recommend everyone has their ATO account linked to their MyGov account, as you can then easily look up a range of superannuation information, including how much unused concessional contributions you have available, as can be seen in the below example image:

Australians have a concessional super contributions cap of $27,500 a year. Photo: Getty

You can check the ATO’s online service through your MyGov account to find out the exact amount you can contribute to super using carry-forward rules.

As you are over age 60, I would normally suggest you make salary sacrifice or personal tax-deductible contributions ahead of paying down your mortgage.

This is because it’s tax effective and once you retire in a few years all funds can be withdrawn tax free to repay any outstanding mortgage.

However, if you have no room under the concessional cap then it becomes a close call as there are no immediate tax benefits in contributing to super, apart from the earnings only being taxed at a maximum of 15 per cent rather than at your marginal tax rate.

By paying down your mortgage you are in effect receiving a guaranteed rate of return, albeit at only 2.34 per cent per annum, but then no further tax applies.

Depending on which investment option you are investing in and your tolerance for risk, I would still expect most balanced-style super funds to outperform 2.34 per cent per annum from now until your retirement in six years.

So, on balance, given your age and proximity to retirement, I would still prioritise building up super over making increased mortgage repayments, unless you wanted to take a very conservative position by locking in the 2.34 per cent annual return.

Question 2:

I am a 67-year-old single female, fully retired from the workforce. I am of age pension age, but do not draw any government pension. The only income I have is from dividends from shares that are 100 per cent franked. How much tax would I be liable for in 2021? My dividends are $19,729 and franked imputation credits are $8455.

If your only income is dividend income of $19,729 with imputation credits of $8455, you will not be liable for any income tax.

In fact, you would receive a refund of your franking credits.

If you are required to lodge a tax return, you declare your dividend income, including unfranked amounts, franked amounts and franking credits in your tax return for individuals.

The ATO will use this information to work out your refund.

If you are not required to lodge a tax return, you can still claim a refund of your franking credits. This can be done:

• Online via your MyGov account
• Via phone to the ATO 13 28 65
• Via post

Note that some people over the age of 60 are eligible for an automatic refund of their franking credits but their refund has to be under $5460.

You can refer to this page on the ATO website for more details.

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.

Source  :  https://thenewdaily.com.au/finance/superannuation/2022/01/23/super-concessional-contributions-sankey/?utm_source=Adestra&utm_medium=email&utm_campaign=Morning%20News%20-%2020220124

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