Are super contributions tax deductible?

Ever woken up on your birthday and found a horribly-wrapped present at the end of your bed? Plain paper, bulky sticky tape, badly written card? But then you open the present and it’s what you’ve been dreaming of for years?

The same could be said for super. It’s messy, complicated, tricky to get into. But worth it in the end. 

Why? Because the three layers of tax benefits—when you contribute, while your money’s invested and when you take it out—could make it supremely effective at giving you a long, worry-free retirement.
 

Tax-deductible super contributions

One particular tax benefit is tax-deductible contributions to super.

Personal super contributions—those made from money you’ve already paid tax on such as savings or your take-home pay—are tax deductible. These contributions can be claimed against your assessable income when you lodge your tax return.

Bottom line? You get to save some tax whilst bringing you closer to your retirement goals.

Here’s how it works.
 

Learn more about building your wealth by speaking to a financial adviser

Case study example

Joana works in IT earning $90,000 a year. She decides to make an additional personal contribution of $13,000 into super. Here’s the first complication – she pays tax on that contribution at 15% ($1,950) so she is left with $11,050 to invest for her retirement.

When completing her tax return, Joana claims a tax deduction for the $13,000 personal super contribution. This reduces her taxable income to $77,000 for the financial year.

As her marginal tax rate is 34.5% (including the 2% Medicare levy), she pays $4,485 less in tax than she would have had she not made the super contribution. In total, she saves $2,535 on tax (we’ve deducted the $1,950 paid in contributions tax).
 

The rules on personal tax-deductible super contributions

There are rules surrounding tax in super that you should be aware of.

  • Personal contributions are concessional contributions  so, they’re capped at $25,000 per financial year1. If you choose to contribute over this amount, you may be required to pay more tax.
  • Your personal super contribution is taxed at 15%2 which is significantly lower than what most people pay on their taxable income (the highest marginal tax rate is 47% if you include the Medicare Levy).
  • Higher income earners (on more than $250,000) are taxed at 30%3 on contributions. That’s a decent extra tax hit—but still a lot less than the top marginal tax rate.
  • If you’re a lower income earner on a marginal tax rate of 15% or close to it, there may be little advantage in making a tax-deductible super contribution. Speaking to a financial adviser can help you decide the best approach.
  • If you’re 67 or over you need to meet a work test before you can make a personal super contribution. This means you must have been employed during the financial year for at least 40 hours over a period of no more than 30 consecutive days.
     

Claiming your tax deduction

To claim a tax deduction, you’ll need to provide your super fund with a ‘Notice of intent to claim or vary a deduction for personal super contributions’ form. This form is available through your super fund or the Australia Taxation Office.

Once your super fund receives your form, they’ll be able to confirm the amount you’re eligible to claim as a tax deduction.

Bottom line: Super is harder than it probably should be—but better than you probably think. The mix of a whole range of tax savings, structured long-term investing and regular contributions make it a powerful engine for delivering an anxiety-free retirement.

There are a whole range of strategies—like personal tax-deductible super contributions—that make it worthwhile putting a little extra effort (and money) into your super. Talking to a financial adviser can make it a lot easier.

1 ATO: Concessional contributions cap – 22 July 2020 https://www.ato.gov.au/Rates/Key-superannuation-rates-and-thresholds/?page=3
2 ATO: Tax on contributions – 28 November 2018 https://www.ato.gov.au/Individuals/Super/Growing-your-super/Adding-to-your-super/Tax-on-contributions
3 ATO: Tax on contributions – 28 November 2018 https://www.ato.gov.au/Individuals/Super/Growing-your-super/Adding-to-your-super/Tax-on-contributions
 

Important information and disclaimer

This article has been prepared by NULIS Nominees (Australia) Limited ABN 80 008 515 633 AFSL 236465 (NULIS) as trustee of the MLC Super Fund ABN 70 732 426 024. The information in this article is current as at August 2020 and may be subject to change. This information may constitute general advice. The information in this article is factual in nature and does not take into account personal objectives, financial situation or needs. You should consider obtaining independent advice before making any financial decisions based on this information. You should not rely on this article to determine your personal tax obligations. Please consult a registered tax agent for this purpose. An investment with NULIS is not a deposit with, or liability of, and is not guaranteed by NAB or other members of the NAB Group. Opinions constitute our judgement at the time of issue. In some cases information has been provided to us by third parties and while that information is believed to be accurate and reliable, its accuracy is not guaranteed in any way. Subject to terms implied by law and which cannot be excluded, neither NULIS nor any member of the NAB Group accept responsibility for any loss or liability incurred by you in respect of any error, omission or misrepresentation in the information in this communication. Past performance is not a reliable indicator of future performance. The value of an investment may rise or fall with the changes in the market.