Hi, we took some bad advice a number of years ago which affected our super. We have a business that is going well and we pay ourselves quite well ($125,000 each) and we own our own home. Given the hit to our super should we look to reduce our salaries and put the difference into our super. We are in our mid 50’s and would like to know the tax implications of this strategy?

Hi Bec,
I'm not a financial planner and can't give advice but it sounds like you need to see a good/reputable financial planner and accountant to give you some personal advice suited your particular situation, that also understands business operations and exit strategies as well etc.

I personally wouldn't be relying on information from forums.

Hi Bec,

As usual, there is lots of things to consider when talking about something like this. But generally speaking, someone of your age, good incomes and quite financially secure outside superannuation, should be looking to maximise your contributions to superannuation to minimise your income tax via salary sacrifice/tax deductible contributions to super.

You may even also look to make non concessional contributions to superannuation (after tax contributions) because at your stage in life, your savings/investment goal might be purely focused on retirement and superannuation will be your lowest tax environment to invest in.

Of course you need to observe your contribution caps and also be mindful of superannuation preservation age and the risk that preservation age may increase further, and decide if this lines up with your goals.

If you would like to discuss further, don't hesitate to contact me on glenn@precisionwm.com.au or 1300 200 012.

Cheers

Glenn

Hi Bec,

Great question, and pleased to hear you guys are bringing this conversation forward - Not great to hear you haven't had the best experiences in the past!

Answering these types of specific questions is often difficult as there are so many variables with your income, tax rates, superannuation balance, timeframe to retirement, how your superannuation is invested, what personal objectives are driving these decisions etc

In these types of situations it is almost always best to get good advice, a good adviser will always discuss your options prior to engaging you as a client and determine the benefit they can provide.

At a high level, the simplest way to contribute to superannuation is via concessional contributions (contributing before tax) There is a $25,000 cap per individual per financial year so in most cases its best to avoid breaching this cap. This will allow you to contribute up to $50,000 between you and will also reduce your respective taxable incomes which will save on your income tax - You should also note that these contributions will still attract 15% tax inside super.

You can also contribute after tax (non-concessional contributions) The annual cap is currently $100,000 per person per FY or $300,000 per person under the "bring forward rule" however, you cannot make any further non concessional contributions for 3 years under this rule once the initial $300,000 contribution is made.

There is also a substantial amount of legislative change in this space in recent years meaning the superannuation / retirement landscape is very different than 2-3 years ago - Transition to retirement pensions should also be considered however, may or may not benefit you depending on your financial circumstances. I would also highly recommend looking at your business structure and exit strategy as there can be some great tax incentives in this space if executed correctly!

In summary, everyone is different, and what works well for you may not benefit others, there are many factors you should both be mindful of when it comes to maximizing your retirement benefits and good advice should be sought to ensure you get the best possible financial outcome.

Hopefully this is a good starting point for you both!

Happy to discuss further.

Regan

Hi Bec,

I can understand that completely. Being in finance for over a decade now, I have met a lot of great professionals, and some not so great as well.

From my experience, business owners that have great accountants that really know the rules of the tax system and provide great business and tax advice are one of the most critical people to have on your team. They will also be able to either connect your with some other planners that have a similar view or professional scope or be able to question/review the advice you receive to vet it too.

It is definitely hard to find the diamonds in the rough in all professions these days (builders, plumbers, doctors, lawyers, brokers, accountants etc) and no industry is exempt. I would just shop around, do your research, get feedback from people and professionals you know and ask lots of questions.

Good luck in your quest.

Hi Bec,

Depending on your business structure, the tax benefits may change. However, the simple view is that Super is only taxed at 15% going in as opposed to 27.5% in company, or up to 47% for individuals (through trusts, sole trader or partnership). Biggest downside is loss of access to those funds until retirement age. Against your wages above, 39% effective tax rate down to 15%, saved tax put into retirement investments.

If you have been bitten in the past by a planner, find another one. Speak to other professionals (accountants, lawyers, finance brokers) for referrals, and make sure there is no finders fee/referral fee in their relationship (breaks the confidence of the referral). A good advisor will run through where you are now, where you want to be in the future and structure the advice accordingly.
If not happy with the advice, start again - they do not own you as a client! For a full plan, you may cop a fee for service, so wait until you are confident in the party before going too far.

You can also run the details through your accountant as a second opinion. While they will generally be restricted on advice, they might be able to point out areas of concern/interest or clarify what the planner has suggested.

Good luck.

Todd.