62% tax savings on deductions

Just remember that the extra tax deductions on negatively geared rental properties won’t affect the Div 293 tax liability.

A lot of guys salary package those costs to manage Div 293.

 

That is a neat trick. Move expenses into "Salary packaging" category rather than negative gearing.

 

Wow, this has been quite the thread to read. I've tried to understand Division 293, but remain confused... I even called the ATO...

I'm hopeful that the wizards of this forum can provide additional context for me on a hypothetical. As I try to understand tax strategies -

Earnings:
Salary earnt (before tax, inclusive of commission) in Fy21/22 - $266K
Employer Super Contributions in Fy21/22 - $25K
Rental income in Fy21/22 - $20K
Shares: $4K

Deductions:
Rental deductions in Fy21/22 - $20K
Other tax deductions - $10K

Debts:
HECs at $9K

Ok, now for the questions -

1. If a person has $40K in concessional contribution roll over. If they make a $20K contribution to their super fund and claim it as a tax deduction, will they be able to reduce their earnings by $20K and benefit from a reduction in tax owing?

2. Are they better off instead paying the HECs debt in full before tax time?

Thanks a lot

TommoAUS

 

1. What is your assessable income ? (ie income after all rental income and rental deductions).
2. How much was contributed as concessional contributions ? This includes employer, sal sacrifice, catch up etc

3. If the sum of 1 + 2 is $250,000+ then a FURTHER 15% tax applies to the amount in 2. It will be assessed either by automatic amendmnet or later issued as a amendmnet by the ATO. All automatic.

4. The Div 293 is assessed personally. However there are two payment options

• Paid personally this is a non-concessional contribution or
• Paid by a release from the fund (within 60 days)
• You can mix paying personally a release as you choose.

HELP debt has nothing to do with Div 293 at all.
Contribution of $20K to super doesnt help Div 293. Why ? Because the $20K reduces assessable income and also increases contributions.

Paying the HELP debt may avoid the compulsory repayment if the WHOLE debt is repaid. You are merely bringing forward this paymnet. Indexing of the debt already occurred

 

Hi Paul,

Very helpful. In answer to your questions -

Assessable income
$260K

Concessional contributions
Employer - $25K
Personal contribution with notice of intent to claim - $20K

I guess the question is... is it still worthwhile making personal contributions to super for a tax deduction once you are being slugged with Div 293?

 

Yes, However consider that the net tax saving is less. ie 47% less 30% = 17%. Also remember the contribution is preserved. On $10K the saving is $1700 so it is regressive.
Q : Do you have the catch up cap that allows the extra $17.5K ? If not you also face excess contributions tax. The annual standard cap is $27500.

When I described the tax saving at 17% remember... 47% is the enhanced personal deduction benefit as a higher refund. The other 30% taxes can be paid out of the super fund if the release option is used. Think of it like two wallets. One isnt yours. But ultimately it is also your super savings

 

Ah, this is very helpful. Where as usually if one were not Div 293, it would be 47% less 15% = 32% saving?

Yes, the catch up cap is there - currently sitting at about $40K

 

yes. Otherwise 32% saving,

 

Thanks Paul -

With all your wisdom, when you find yourself in the Div 293 position, what would you do..

1. Rather than contribute the $20K to super, run the market instead
2. Place it into super and take the immediate benefit, irrespective of div 293

 

I never answer such questions. What I do and think isnt relevant. Only personal advice can assist YOU to choose

 

I had quite a giggle at that response Paul. Honestly, thank you for covering the hypothetical. It is appreciated, a lot.

Cheers
TommoAUS

 

I am often asked "what do I think". I would be concerned for what I say. You should hear what my wife thinks, of what I think.