Key Takeaways
- Many investors use salary sacrifice to contribute to superannuation, but there may be a more strategic way to manage these contributions
- Tax deductions for super contributions are the same regardless of when the contribution is made during the financial year
- Instead of contributing immediately, funds can be placed in a home loan offset account throughout the year
- Using an ATO tax variation, investors can receive their tax savings earlier and add them to the offset account
- This strategy helps reduce home loan interest and accelerate mortgage repayments without reducing superannuation tax benefits
Hello there. It’s Rick Leighton.
Today I’ll cover a strategic way to use ATO assistance to help pay off your home loan faster.
Sounds pretty attractive, doesn’t it?
A lot of clients ask whether it’s a good idea to salary sacrifice additional contributions into superannuation.
Our view is that if you have spare funds available, and you understand that super contributions generally can’t be accessed again in the short term, then it can be a sensible option. After all, the money is still going toward your long-term financial future.
However, from a tax strategy perspective, there may be a smarter way to manage those contributions.
Whether you contribute money to super at the beginning of the financial year or right at the end, the tax deduction you receive is exactly the same.
So here’s an alternative approach.
Instead of making those contributions through salary sacrifice during the year, you could place those funds into the offset account attached to your home loan and leave them there throughout the year.
Then we prepare an ATO tax variation so that your expected tax savings are returned to you earlier through your pay.
Those tax savings can also be placed directly into your offset account.
Over time, this can make a significant difference.
Every dollar sitting in your home loan offset account is a dollar you’re not paying interest on, which means you are effectively paying down your mortgage faster.
Then, a few days before the end of the financial year, you simply withdraw the amount you intended to contribute to super from the offset account and make the super contribution at that point.
The tax deduction remains exactly the same.
But during the year, those funds have been working to reduce your home loan interest and accelerate your mortgage repayments.
So you receive the same tax benefits, while also helping to pay off your home loan sooner, without any additional effort or extra repayments.
It’s a double benefit, and we’re big fans of double benefits.
To find out more, talk to us at Ethical IQ Advisory — Australia’s number one tax advisory firm for property investors.
You can book a complimentary strategy onboarding session by selecting Game-Changing Tax Strategy Number 8: How to Use ATO Assistance to Pay Off Your Home Loan Faster.
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