When contributing to super, claiming a portion of the contribution as a tax deduction could enable you to pay less capital gains tax and increase your retirement savings.
HOW DOES THIS STRATEGY WORK
Cashing out a non-super investment, paying capital gains tax (CGT) and using the remaining amount to make a personal super contribution can be a powerful strategy.
This is because the low tax rate payable on investment earnings in super could more than compensate for your CGT liability over the longer term.
However, if you meet certain conditions, you may want to claim a portion of your super contribution as a tax deduction. By doing this, you could use the tax deduction to offset some (or all) of your taxable capital gain and reduce (or eliminate) your CGT liability.
While the tax-deductible portion of your super contribution will be taxed at 15%¹ in the fund, this strategy could enable you to make a larger super investment and retire with even more money to meet your living expenses.
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 save from claiming the deduction.
OTHER KEY CONSIDERATIONS
- Personal deductible contributions count towards the ‘concessional contribution’ cap (which is $25,000 in 2019/20) and tax penalties apply if you exceed the cap.
- You can’t access super until you meet certain conditions.
- If you did not use up your concessional contribution cap in 2018/19 and meet certain conditions, you may be eligible to carry forward the unused cap amount. This may enable you to make concessional contributions exceeding the annual cap in 2019/20 or the following four financial years.
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¹ Individuals with income above $250,000 in 2019/20 will pay an additional 15% tax on concessionally taxed super contributions.
Source: MLC (National Australia Bank Limited ABN 12 004 044 937, AFSL 230686)
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All of the material published on this website is for information purposes only and does not constitute advice. This information is of a general nature only and has been provided without taking account of your objectives, financial situation or needs. Because of this, we recommend you consider, with or without the assistance of a Financial Adviser, whether the information is appropriate in light of your particular needs and circumstances. Westlawn Wealth Management Pty Ltd ABN 32 124 861 409 Corporate Authorised Representative of Affinia Financial Advisers Limited ABN 13 085 335 397 AFSL No. 237857. Please note that Affinia Financial Advisers Limited is not responsible for the advice and services provided by Westlawn Finance Limited, Westlawn Insurance Brokers Pty Ltd, Westlawn Life Insurance Pty Ltd or Westlawn Business Services Pty Ltd.