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If you’ve got cash to spare and would like to boost your retirement savings, then making a tax-deductible super contribution is a great way to get the maximum bang for your buck.
Yes, that’s right. You can boost your super and get a tax deduction to sweeten the deal. But as with everything to do with super, there are rules and limits to the government’s generosity.
For starters, you can’t claim a tax deduction for super contributions your employer makes on your behalf. This includes your employer’s 9.5% compulsory super guarantee and any reportable contributions above this amount, including any salary sacrifice arrangements you may have.
You also can’t claim deductions for rollover payments from another fund, including foreign funds.
So what are tax-deductible super contributions?
Tax-deductible super contributions are made from your after-tax income. This income may be from a variety of sources such as your take-home pay, savings, an inheritance or from the sale of assets.
Whatever the source, you can make a payment to your super fund from your bank account either as a one-off payment or a periodic direct debit.
Concessional contributions are taxed at the ‘concessional’ super rate of 15% for people on incomes of up to $250,000. For most people, 15% is lower than the marginal tax rate you pay on income. For those earning more than $250,000, an additional 15% tax may be payable on some or all your concessional contributions.
A word of warning though. If you exceed your concessional contributions cap, you may be liable for extra tax. These excess contributions will also count towards your non-concessional contributions cap, currently $100,000 a year (or $300,000 in any three-year period under the bring-forward rule).
Who can make tax-deductible contributions?
There was a time when the only people who could claim a tax deduction for super contributions were self-employed (defined in super legislation as earning less than 10% of their income from salary or wages).
But thanks to changes in super legislation on 1 July 2017, more Australians are now able to make voluntary tax-deductible, concessional super contributions.
If you are self-employed you can still do this, but now you’re also eligible if you:
- Earn salary or wages as an employee
- Earn investment income
- Receive a government pension or allowance
- Receive a partnership or trust distribution
- Earn income from foreign sources
- Earn superannuation income.
Before you get too excited, there’s a catch. To be eligible to claim a tax deduction for your super contributions you must also:
- Be aged under 75
- Meet the work test if you’re aged between 65 and 74
- Not use the contribution to help fund an existing super income stream or pension
- Not be splitting the contribution with your spouse (married or de facto)
- Not make the contribution to an untaxed super fund or a Commonwealth public sector defined benefit fund.
If you do claim a tax deduction for your personal super co-contribution, you can’t also claim the government super co-contribution.
How do I claim a tax deduction for a personal contribution?
Before you can claim a tax deduction for your personal super contributions, you must provide your fund with a ‘Notice of intent to claim or vary a deduction for personal super contributions’ form (NAT 71121). You can download this form from the Australian Taxation Office (ATO) website, or get it from your super fund.
When you complete the form, you must:
- Provide it to your fund by the end of the financial year following the one in which you made the tax-deductible super contribution, or by the day you lodge your tax return for the financial year in which you made the contribution, whichever comes first.
- Receive written acknowledgement from your fund before you claim the tax deduction on your tax return. This acknowledgement will confirm the amount you are eligible to claim as a tax deduction.
The bottom line
If you’re eligible to make tax-deductible super contributions, it’s a strategy well worth considering. Not only will you boost your retirement savings, but you’ll be doing it in the most tax-effective way.
Whether it’s appropriate for you depends on your individual financial circumstances. Your super fund may be able to give you more information and it may also be worthwhile seeking independent financial advice
- 2019/2020 guide to non-concessional contributions (after-tax super contributions)
- 2019/2020 guide to concessional contributions (before-tax super contributions)
- A super guide to understanding the bring-forward rule
- Salary sacrifice and super: How does it work?
- What to do if you exceed your super contributions caps
- Contribution splitting: How to boost your spouse’s super
The information contained in this article is general in nature.