Superannuation is the largest tax shelter in Australia

Earnings on investment returns in your retirement superannuation account are tax-free, subject to some limits. So, in broad terms:

• If you earn interest and capital gains in investment returns outside of super, then you pay tax on it.
• If you earn the same amount in a superannuation pension account, then you pay 0%.

This can be worth tens of thousands of dollars per year.

The question is how to get more money into your superannuation account:

1. Using the methods above
2. You can move money from personal savings into your superannuation account. There are rules around how much you can do each year, based on your caps and your age.
3. If you are older than 55 and sell your house, you may be able to add up to $300,000 (each if you have a partner) to your super account.
4. If you own a small business and sell it, you may be able to make additional payments.
5. If you have had a personal injury compensation, then you may be able to make additional payments.
6. If you took out money during COVID, you may be able to put that money back in.
7. If you have been paid compensation for poor financial advice.

Most of these are called "non-concessional". There is no tax paid, and you do not get an income tax benefit. The benefit is getting more money into super, where it will be tax-free in retirement.

Minimise your tax paid on investments during accumulation

Labour has proposed extra taxes on high superannuation balances. If you have a partner, there may be a benefit in trying to equalise superannuation balances. What to do: Divert contributions to the lower balance account. With the disclaimer that if there is a big difference in age, then this might complicate this strategy.

Some caps

Transfer balance cap: $1.9m going to $2.0m. This is how much you can transfer into your tax-free pension.
Total superannuation balance cap:  This is the value of your super at 30 Jun the prior year. You can access this from your MyGov account. It creates different restrictions:

• $500,000: Above this level, you can no longer make catch-up contributions and get a tax deduction.
• $1.7m: Above this level, you can no longer make catch-up contributions from prior years
• $1.9m: Above this level, you can no longer make additional contributions from your savings. You have limitations on spouse offsets.
• $3m: Labour has proposed a 15% additional tax on balances above this level. It seems likely that this will happen.

Reduce tax on inheritance

Some of the money in your super may be taxable if you die before it runs out and you are giving it to non-dependents (your spouse is typically a dependant, adult children are typically not).

The simple version is that if you put after-tax money into your super, your descendants probably won't need to pay tax on it. However, on the money your employer contributed, your descendants will probably have to pay tax on it.

How much tax? Up to 17%. i.e. up to $17,000 for every $100,000. It is meaningful.

Some methods to minimise:

• Recontribution strategy. Take money out when you are in the pension phase, and it will be tax-free. Then add money back in using the methods above, and it won't be taxable to inheritors.  What to do: Get started early if you have a larger balance. The current limit for adding after-tax money back into superannuation is $120,000 per year. i.e. every year you do this, you could be saving your descendants up to $20,400 in tax.
• Revert superannuation money to the surviving partner, where it is tax-free, and then pass on to descendants when the second partner dies. Maybe this might mean transferring non-super assets to descendants when the first partner dies. What to do: Make sure both partners have a reversionary beneficiary: spouse. Maybe you need to update your will if you want to transfer other assets to children or grandchildren. Make sure your will and your super instructions are consistent! Don't have your descendants blow the tax savings on lawyers...

Bonus money for early inheritance

If you gift extra superannuation contributions for your descendants while you are alive, many of the benefits in the income section above may apply. Caution: This might affect your pension eligibility if you gift more than $10,000 per year or $30,000 over three years.

The two main benefits are:

• Low-earning descendants might be eligible for up to $500 co-contribution from the government.
• Higher-earning descendants may be able to get a tax deduction on the money that you add.
• Mid-earning descendants may get both.

You will need to be aware of their caps, as they will determine the eligibility.

For example, say you have a granddaughter earning $30,000 from a part-time job. Subject to caps, you could:

1. Gift $3,000 to her as a non-concessional payment. She would receive $3,500 in her super fund. $3,000 from you (tax-free) plus a $500 government co-contribution.
2. Gift $3,000 to her as a concessional payment. She would receive $3,000 in her super fund from you*. Then, she would claim a deduction on her tax return and get back (as cash) $540.

* Full disclosure! She would also get taxed $450, but then have the $450 returned as a low-income earner.