Save on tax and boost your super

Save on tax and boost your super

By making an after-tax contribution to your superannuation before the end of the financial year, you could boost your retirement savings for the future – and claim a tax deduction now.

Here’s what you need to know:

Benefit 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.

Here’s an example: Bob is 55 years of age and earns $80,000 pa, 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 65 to 74, and have worked at least 40 hours over 30 consecutive days in the financial year you make the contribution.

You will also need to submit a valid “Notice of Intent’ to 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.

Need advice?

If you’re thinking about investing more in super, we can help you decide whether making a personal deductible contribution is right for you. We can also help you assess all your options to help build a healthy retirement nest-egg. Click here to contact us today.

Information provided is general advice only and does not take into account your personal objectives, financial situation or needs.  Before acting on this information you should consider the appropriateness of the information having regard for your own circumstances, personal objectives, financial situation and needs.  When deciding whether to acquire or continue to hold a financial product(s), you should first obtain and consider the Product Disclosure Statement(s), Information Statement(s) and/or other relevant product documentation relating to that product(s).

Financial Planning services provided as Authorised Representatives of Power 2 Financial Services Pty Ltd ABN 51 164 747 595 Australian Financial Services Licence No. 444078