Make tax deductible super contributions

All / 18.06.2020

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 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. This cap is $25,000 in 2019/20, or higher if you didn’t contribute the full $25,000 in 2018/19 and are eligible to make ‘catch-up’ contributions. 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).

Seek advice

To find out whether you could benefit from this strategy, you should speak to a financial adviser and a registered tax agent.

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.

DetailsMake personal contributionMake personal contribution and claim deduction
Personal super contribution$10,000$10,000
Assessable income$80,000$80,000
Less super deductionNil($10,000)
Taxable income$80,000$70,000
Income tax and
Medicare payable 4
$19,147$15,697
Income tax and
Medicare Levy saving
$3,450
Less 15% fund tax on deductible contribution($1,500)
Net tax saving$1,950
4 Based on 2019/20 tax rates

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.

You may also want to ask your financial adviser for a copy of our super concept card, called ‘Sacrifice pre-tax salary into super’.

¹ Individuals with income above $250,000 in 2019/20 will pay an additional 15% tax on personal deductible and other concessional super contributions.
² Includes Medicare Levy.
Important information and disclaimer
This document has been prepared by GWM Adviser Services Limited (ABN 96 002 071 749, AFSL 230692) (GWMAS), part of the National Australia Bank group of companies. Any advice provided is of a general nature only. It does not take into account your objectives, financial situation or needs. Please seek personal advice before making a decision about a financial product. Information in this document is current as at 1 March 2020. While care has been taken in its preparation, no liability is accepted by GWMAS or its related entities, agents or employees for any loss arising from reliance on this document. Any opinions expressed constitute our views as at 1 March 2020. Case studies are for illustration purposes only. Any tax information provided is a guide only. It is not a substitute for specialised tax advice.
GWM Adviser Services Limited (ABN 96 002 071 749, AFSL 230692) (‘GWMAS’). A member of the National Australia Bank Limited (‘NAB’) group of companies.
NAB does not guarantee or otherwise accept any liability in respect of GWMAS or these services.

For more information or to speak to one of our Financial Advisers please contact TNR Wealth Management on 02 6621 8544.

Disclaimer
Past performance is not a reliable indicator of future performance. The information and any advice in this publication does not take into account your personal objectives, financial situation or needs and so you should consider its appropriateness having regard to these factors before acting on it. This article may contain material provided directly by third parties and is given in good faith and has been derived from sources believed to be reliable but has not been independently verified. It is important that your personal circumstances are taken into account before making any financial decision and we recommend you seek detailed and specific advice from a suitably qualified adviser before acting on any information or advice in this publication. Any taxation position described in this publication is general and should only be used as a guide. It does not constitute tax advice and is based on current laws and our interpretation. You should consult a registered tax agent for specific tax advice on your circumstances.