What taxable income should I target with Superannuation deductions for FY22?

Many advisers and accountants will be using catch up concessional contributions to reduce taxable income to an optimal level this financial year for big tax refunds, and deciding on what to defer to next financial year.

I have seen many caught out by not considering LITO and LMITO which will stop next financial year.

If this is you, I suggest you read on for a free pro-tip:

One thing we are proud of at Omura is that we put in the extra effort to finesse people’s situations to get the absolute best outcome.

Today we recommended a client use super contributions (including carried forward eligibility from prior years) to reduce her taxable income. There was about $46,000 worth of deductions we could claim. She mentioned that her accountant told her to reduce her taxable income down to $45,000 and no lower, as that’s the point where the value of your deduction drops from 34.50% to 21%.

Hold on a second Mr Accountant.. have you considered the reduction of LMITO?

LMITO stands for Low and Middle Income Tax Offset. The thing you need to know about LMITO is that this offset begins to reduce at $48,000. Whilst it is true that the other tax offset available, Low Income Tax Offset increases as your taxable income goes lower than $48,000, the rate of this increase is only 1.5% (until $45K), compared the decrease in your LMITO of 7.5%, leaving you 6% worse off (from a LITO/LMITO standpoint anyway).

Therefore, we believe that the most optimal point of income to target this financial year is $48,000 rather than $45,000. (This is assuming you can carry forward any unused deductions to future years, of course).

In this case, deferring this extra $3,000 deduction into FY23 would give a benefit of $1,035 instead of $855, resulting in a $180 saving. On top of that, the additional $4,404 of deductions deferred took the tax savings of the deferral to $884).

PS. The entire strategy saved around $9,000 of tax, $884 was simply the extra finessing via deferrals. 

PPS. If you are in or approaching retirement feel free to reach out. Quietly confident we can find you $$$ you didn't know about.