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 taxable 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.
¹ Individuals with income above $250,000 in FY 2022/23 will pay an additional 15% tax on personal deductible and other concessional super contributions.
² Includes Medicare Levy.
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 to your super fund. You will also need to receive an acknowledgment from the super fund before you complete your tax return, start a pension, or withdraw or roll over 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.
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 plans to retire in 10 years and wants to boost his retirement savings.
After speaking to a financial adviser, he decided 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.
If the tax deduction is claimed on the personal contribution, $8,500 (your contribution net of tax withheld) is invested in super.
If no deduction is claimed, $10,000 is invested in super. However, no tax savings are applied to Bob’s income tax assessment for the relevant year.
| 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 payable^ | $18,067 | $14,617 |
| Income tax and Medicare Levy saving | $3,450 | |
| Less 15% fund tax on deductible contribution | ($1,500) | |
| Net tax saving | $1,950 |
^ Based on FY 2022/23 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’.
Other key considerations
- Personal deductible contributions count towards your ‘concessional contribution’ cap. This cap is $27,500 in FY 2022/23, or maybe higher if you haven’t contributed your full concessional contribution cap since 1 July 2018 and are eligible to make ‘catch-up’ contributions. Tax implications and penalties may apply if you exceed your 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
For any Financial Services assistance, please speak to a Financial Planner now at BW Private Wealth Financial Planning | Ballarat | Ararat | Surrounds
Important information and disclaimer
This document has been prepared by Actuate Alliance Services Pty (ABN 40 083 233 925, AFSL 240959) (Actuate), a related entity of Insignia Financial Ltd ABN 49 100 103 722. The information in this document is factual in nature. It reflects our understanding of existing legislation, proposed legislation, rulings etc as at the date of issue (27 March 2023), and may be subject to change. In some cases, the information has been provided to us by third parties. While it is believed the information is accurate and reliable, this is not guaranteed in any way. Examples are illustrative only and are subject to the assumptions and qualifications disclosed. Past performance is not reliable indicator of future performance, and it should not be relied on for any investment recommendation. To the extent that the information in the document contains general advice, it has been prepared without considering any person’s individual objectives, financial situation or needs. You should consider the appropriateness of the general advice in light of your own objectives, financial situation or needs.
This document is not available for distribution outside Australia and may not be passed on to any third person without the prior written consent of Actuate. Whilst care has been taken in preparing the content, no liability is accepted by Actuate or any member of the Insignia Financial group, nor their agents or employees for any errors or omissions in this document, and/or losses or liabilities arising from any reliance on this document.
