October 11, 2023 | 8 min read
Summary: Making additional tax-deductible super contributions can help you save tax while bringing you closer to your retirement goals.
Super can seem messy, complicated and tricky to get into, but it’s 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.
Personal super contributions—those made from money you’ve already paid tax on such as savings or your take-home pay—may be tax deductible. If you are eligible, these contributions can be claimed against your assessable income when you lodge your tax return. So, you get to save some tax whilst bringing you closer to your retirement goals.
Generally, these contributions are capped at $27,500 per financial year. If you choose to contribute over this amount, you may be required to pay more tax.
Here’s how it works.
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 the tax rate she pays on her income 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).
Unfortunately, not everyone can claim a tax deduction for their personal super contributions. Some of the criteria that makes you eligible to do this includes:
Note: if you do claim a tax deduction for your personal super contribution, you can’t also claim the government super co-contribution for those same contributions.
Tax-deductible super contributions offer many benefits if you’re looking to boost your retirement savings while also reducing your taxable income.
Here are some of them:
There are some things to consider when claiming a tax deduction on super contributions.
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.
If your super fund considers the notice valid, it will process your request and send you an acknowledgement.
Salary sacrifice contributions are arranged with your employer and are made before income tax is deducted from your salary, reducing your taxable income immediately.
Personal tax-deductible contributions are made from your after-tax income. You claim a tax deduction for them when you file your tax return, which also reduces your taxable income.
Both types of contributions are concessional contributions with an annual limit of $27,500 per financial year, unless you are eligible for catch-up concessional contributions.
How much of my super contribution is tax deductible?
Personal super contributions—those made from money you’ve already paid tax on such as savings or your take-home pay—may be tax deductible. If you are eligible, these contributions can be claimed against your assessable income when you lodge your tax return.
Do super contributions reduce taxable income?
If you’ve made personal super contributions, you may be eligible to claim them as a tax deduction which may reduce your taxable income.
Salary sacrifice contributions, which are arranged with your employer and made before tax is deducted from your salary, may also reduce your taxable income.
Is it better to salary sacrifice super or claim a tax deduction?
Sacrificing some of your salary into super can reduce your taxable income, so you may end up paying less tax. The amount of tax you pay—15%—is a lot lower than the tax rate you pay on your income, which can be up to 47% (including the Medicare Levy). Higher income earners (on more than $250,000) are taxed at 30% on contributions.
Bottom line: super is harder than it probably should be—but better than you probably think. There can be a range of tax savings, structured long-term investing and regular contributions, which can make it a powerful engine for assisting with an anxiety-free retirement. Talking to a financial adviser can make it a lot easier.
*Based on KPMG Super Insights 2023 Report as at May 2023 KPMG Super Insights 2023 Report
As one of the largest super providers in Australia,* we’re focused on delivering competitive returns, so your money continues to grow. When it comes to support, we go the extra mile— providing general super advice at no additional cost.
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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. NULIS is part of the Insignia Financial group of companies comprising Insignia Financial Ltd ABN 49 100 103 722 and its related bodies corporate (‘Insignia Financial Group’). The information in this article is current as at November 2023 and may be subject to change. This information may constitute general advice. The information in this article is general in nature and does not take into account your personal objectives, financial situation or needs. You should consider obtaining independent advice before making any financial decisions based on this information. It is recommended that you consider the relevant Product Disclosure Statement (PDS) and Target Market Determination (TMD) before you make any decisions about your superannuation. You can obtain the latest copy of the PDS (or other disclosure documents) and TMD by calling us on 132 652 or by searching for the applicable product at mlc.com.au. You should not rely on this article to determine your personal tax obligations. Please consult a registered tax agent for this purpose. Opinions constitute our judgement at the time of issue. The case study examples (if any) provided in this article have been included for illustrative purposes only and should not be relied upon for decision making. Subject to terms implied by law and which cannot be excluded, neither NULIS nor any member of the Insignia Financial 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.