Super strategies – make tax-deductible super contributions

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By making a personal super contribution and claiming the amount as a tax deduction, you may be able to pay  less tax and invest 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%¹, instead of your marginal tax rate which could be up to 47%².

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

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 2020/21) and tax penalties apply if you exceed the cap.
  • You can’t access super until you meet certain conditions.
  • If you are an employee, another way you may be able to grow your super tax-effectively is to make salary sacrifice contributions (see opposite page).
  • If you did not use up your concessional contribution cap in 2018/19 or 2020/21 and meet certain conditions, you may be eligible to carry forward the unused cap amount. This could enable you to make concessional contributions exceeding the annual cap in 2020/21 or future financial year

¹ Individuals with income above $250,000 in 2020/21 will pay an additional 15% tax on
personal deductible and other concessional super contributions.
² Includes Medicare Levy.
3 Unused cap amounts can be carried forward for up to five years. Other conditions apply.

To find out more visit ato.gov.au

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. After speaking to a financial adviser, 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.

Details Make personal contribution Make personal contribution
and claim deduction
Personal super contribution $10,000 $10,000
Assessable income $80,000 $80,000
Less super deduction Nil ($10,000)
Taxable income $80,000 $70,000
Income tax and Medicare payable4 $18,617 $15,167
Income tax and Medicare Levy saving $3,450
Less 15% fund tax on deductible contribution ($1,500)
Net tax saving   $1,950

4Based on 2019/20 tax rates. Includes the Low and Middle Income Tax Offset as at 1 July 2020.


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.

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

Source: MLC Technical – you can download a print ready concept card here.

CONTACT YOUR WESTLAWN FINANCIAL ADVISER

To find out whether you could benefit from this strategy, you should speak to your Westlawn Financial Adviser and a registered tax agent.

Contact us today:

 

General Advice Disclaimer
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.

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