A super tax opportunity

Super is one of the most tax-effective ways to save. You could be thousands of dollars better off by making ‘concessional contributions’ to your super. And, putting more money into your super now could make a big difference to your retirement later on.

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So, before the end of the financial year, ensure you make the most of your concessional contributions so you can take advantage of the tax benefits.*

What are concessional contributions?

Concessional contributions are made to your super either with your before-tax salary or by claiming a tax deduction on certain after-tax contributions.

This financial year, the contribution cap allows you to make these tax-effective contributions up to $25,000. Remember, your employer’s contributions count towards your concessional contributions cap. So, you need to check what amount they will contribute this financial year to work out how much you can top-up your super to take advantage of the $25,000 concessional contribution limit.

Please note that conditions such as age restrictions and the 'work test' (if you’re between age 65 and 74) apply.

You can check your super balance and contributions paid into your account at any time by logging in to your account.

What is the tax benefit?

For most people, concessional contributions are taxed at just 15% - not your marginal income tax rate which could be as high as 47% including the Medicare levy. This big difference in tax could mean thousands of dollars of extra money in your super.

Example: Jamal makes the most of his concessional contributions

Jamal has an annual salary of $110,000 on which his employer pays super guarantee contributions of $10,450. Jamal wants to maximise his concessional contributions so makes an after-tax contribution of $14,550 and submits a ‘notice of intent’ with his fund to claim a deduction on the contribution. The super fund pays 15% tax on this amount, which is taken from Jamal’s account.

When Jamal completes his tax return, he claims a $14,550 deduction which reduces his taxable income to $95,450. As Jamal’s marginal income tax rate is 39% including Medicare levy, he saves $3,492 (24% of the contributed amount) in tax after taking into account the tax paid in super. Jamal also receives an increase of $448 to his Low and Middle Income Tax Offset for a total net tax saving of $ $3,940.

What if you can’t contribute this financial year?

From 1 July 2018, new rules let people with total super balances under $500,000, to ‘carry forward’ up to five years’ of the unused portion of their concessional contributions cap.

So, if you can’t contribute this financial year, you may be able to carry it forward next financial year and contribute up to $50,000.

How to contribute

There are two ways to contribute to your super. However, before you contribute, don’t forget to check you’re eligible.

1. Salary sacrifice using your pre-tax salary

To salary sacrifice to your super, contact your employer’s payroll department and ask them to contribute an amount of your pre-tax salary to your super account. 15% contributions tax will be applied to the contribution rather than your marginal income tax rate. You should confirm with your employer whether this may impact your other entitlements before entering into a salary sacrifice arrangement.

2. Make voluntary personal contributions using your post-tax salary and claim a tax deduction

The easiest way to make a contribution into your super is through BPAY®. You can find your BPAY details by logging in to your account and going to the ‘contributions and consolidation’ section under the Account Details page. There is no minimum amount you need to contribute.

There are other ways to contribute to your account.

  • Complete an ‘Additional Lump Sum Contribution’ form, which includes payment details if paying by cheque.
  • Ask your employer or payroll department to make an after-tax deduction from your pay.
  • If you are an MAP Personal Super member, you can set up a regular direct debit by completing a Direct Debit Request form.

Once you have made a contribution, if you wish for this to be treated as a concessional contribution you will need to lodge a ‘Notice of intent to claim or vary a deduction for personal super contributions’ (notice of intent) to your super fund on or before:

  • the date you submit your tax return, or
  • the end of the following financial year in which the personal contributions were made, or
  • before you rollover or withdraw funds from your account.

Then, on your annual tax return, declare the amount of concessional contributions you have made in the specific section of your tax return relating to personal concessional contributions. Note, in certain circumstances the Australian Taxation Office (ATO) may disallow your deduction if you do not have enough income to support it.

Need help with super contributions?

*Before making a decision to make extra contributions to super we strongly suggest that you speak to your financial adviser. Please contact your Pitcher Partners adviser.

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