Super Strategies Series: Make tax-deductible super contributions

By making a personal super contribution and claiming the amount as a tax deduction, you may be able to pay less tax and investment more in super.

How does the strategy work?

If you make a personal super contribution, you may be able to claim the contribution as a tax deduction and reduce your assessable income. 

The contribution will generally be taxed in the fund at the concessional rate of up to 15%, instead of your marginal tax rate which could be up to 47%. 

Depending on your circumstances, this strategy could result in a tax saving of up to 32% and enable you to increase your super. 

Note: From 1 July 2017, most people will be able to claim a tax deduction for personal super contributions, regardless of their employment status. 

How do you claim the deduction?

To be eligible to claim the super contribution as a tax deduction, you need to submit a valid 'Notice of Intent' form. You will also need to receive an acknowledgement from the super fund before you complete your tax return, start a pension or withdraw or rollover money from the fund to which you made your personal contribution. 

Make sure you can utilise the deduction

It is generally not tax-effective to claim a tax deduction for an amount that reduces your assessable income below the threshold at which the 19% marginal tax rate is payable. This is because you would end up paying more tax on the super contribution than you would saving from claiming the deduction. 

Other key considerations

Personal deductible contributions count towards the 'concessional contribution' cap (which is $25,000 in the 2017/18 financial year) and tax penalties apply if you exceed the cap. You can't access super until you meet a 'condition of release'. For more information, please visit the ATO website. 

If you are an employee, another way you may be able to grow your super tax-effectively is to make salary sacrifice contributions. 

From 1 July 2018, if certain eligibility criteria are met, you may be able to carry forward unused concessional cap amounts. This may enable you to make concessional contributions in excess of the annual cap in a future year. 

Case study

Bob, aged 55, is self-employed, earns $80,000 pa and pays tax at a marginal rate of 34.5% (including the Medicare Levy). 

He's paid off most of his mortgage, plans to retire in 10 years and wants to boost his retirement savings.  He decides to make a personal super contribution of $10,000 and claim the amount as a tax deduction. 

By using this strategy, he'll increase his super balance. Also, by claiming the contribution as a tax deduction, the net tax saving will be $1,950.

Salary sacrifice contributions

If you are an employee, you may want to arrange with your employer to contribute some of your pre-tax salary into super. This is known as salary sacrifice. 

Like making personal deductible contributions, salary sacrifice may enable you to boost your super tax-effectively. There are, however, a range of issues you should consider before deciding to use this strategy. 

We can help you determine whether you should consider salary sacrifice instead of (or in addition to) making personal deductible contributions.

Seek advice

To find out whether you could benefit from this strategy, you should speak to us as well as your accountant.

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