By making an after-tax contribution to your superannuation, you could boost your retirement savings for the future – and claim a tax deduction.
In the past, this strategy was only available to the self-employed and those earning less than 10% of their income as an employee. But since 1 July 2017, this strategy is also available to all employees.
Here’s what you need to know.
Benefit for today – and tomorrow
If you make super contributions from your after-tax income or savings, you may be able to claim them as a tax deduction and reduce your taxable income, while boosting your super.
The contribution will then be taxed in your super fund, generally at the concessional rate of up to 15% (or up to 30% for higher income earners). This is instead of paying tax at your marginal tax rate, which could be up to 47% (including the Medicare levy).
Depending on your circumstances, this strategy could result in a tax saving of up to 32% – and help you retire with more.
Eligibility conditions apply.
Here’s an example:
Bob is 55 years of age and earns $80,000 p.a., so his marginal tax rate is 34.5% (including the Medicare levy). He’s paid off his mortgage and plans to retire in 10 years – so he wants to contribute more to his super.
He makes a personal super contribution of $10,000 and claims the amount as a tax deduction – reducing his taxable income. This means he pays $3,450 less tax in his tax return.
Meanwhile, tax of 15% ($1,500) is deducted from the contribution in the fund.
So, by using this strategy, Bob increases his super balance and makes a net tax saving of $1,950 (that is, $3,450 less the $1,500 tax he paid within his super fund).
Am I eligible?
To make a personal deductible contribution to super, you need to be under the age of 65, or between 65 and 74, and have worked at least 40 hours over 30 consecutive days in the financial year you make the contribution.
How do I claim my deduction?
To claim the super contribution as a tax deduction, you need to submit a valid ‘Notice of Intent’ form with your super fund, and receive an acknowledgement from them, before you complete your tax return, start a pension or withdraw or rollover the money.
Remember the cap
Remember, if you claim personal super contributions as a tax deduction, they count towards your concessional contribution cap, which is $25,000 in the 2018/19 financial year. It’s important you don’t exceed the cap, as penalties may apply.
All employer contributions (including superannuation guarantee and salary sacrifice) and certain other amounts are also counted towards this cap.
If you’re thinking about investing more in super, we can help you decide whether making a personal deductible contribution is right for you.
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Case studies in this publication are for illustration purposes only. Any general tax information provided in this publication is intended as a guide only and is based on our general understanding of taxation laws. It is not intended to be a substitute for specialised taxation advice or an assessment of your liabilities, obligations or claim entitlements that arise, or could arise, under taxation law, and we recommend you consult with a registered tax agent.
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