Claim a deduction for making a personal contribution into your super

2017-06-05
New opportunities for Employees' to make more tax effective contributions to their Super fund New opportunities for Employees' to make more tax effective contributions to their Super fund

Did you know you can now claim a tax deduction for making a personal contribution into your super?

Previously, most Employees were excluded from claiming a tax deduction for their personal contributions to super.

  • Their only real option was to commit to an ongoing Salary Sacrifice Arrangement with their employer, if it was available.
  • Now, if your employer doesn’t offer Salary Sacrifice Arrangements (or you just want more flexibility in how you make extra contributions to your super), you can claim a personal tax deduction for personal contributions.

Jump Ahead

In a Salary Sacrifice Arrangement, you ask your employer to pay part of your before-tax salary to your super fund rather than paying it - and then taxing it - to you as a salary. This reduces the amount of your assessable income and with it, the amount of income tax you pay.

Why consider Salary Sacrificing additional money into super?

  • Salary sacrifice contributions are taxed at a maximum of 15% by your super fund
  • This tax rate is usually less than the tax you pay on your salary - which is about 32.5% for most people earning between $37,001 and $90,000

For many people, salary sacrifice can be useful as they effectively re-allocate what would otherwise be paid in tax to their super fund.

Why consider Personal deductible contributions into super as an alternative?

  • Not all employers offer a Salary Sacrifice Arrangement
  • Some employers will calculate your additional sacrifice contribution to reduce the amount of SG they must pay you
  • Not all people want to lock themselves into a formal arrangement that’s difficult to stop and start, if needed

Compare the pair by the numbers

Generally, higher income earners gain the greatest benefit from either of these strategies. 

  • Depending on your income (and how much you can afford to contribute), a mix of both tax deductible and non-tax deductible super contributions may be a good option to discuss with your financial adviser.

ASIC's MoneySmart website has a useful calculator to help work out whether to make extra contributions before or after tax.

  • From a tax and super viewpoint, a personal deductible contribution has the same net effect as salary sacrifice, as you can see in the table below.
Outcome

Personal Deductible
Contribution into Super

Salary Sacrifice
into Super
Original Taxable income $80,000 $80,000
Salary Sacrifice amount - $15,000
Personal Deductible
Contribution amount
$15,000 -
New Taxable income $65,000 $65,000
Tax payable in 17/18
(including Medicare levy)
$13,947 $13,947
Concessional Contribution
(excluding super guarantee)
$15,000 $15,000
Contributions tax $2,250 $2,250

Maximising additional contributions with an offset account

  • For people thinking about making personal contributions to their super fund once a year, consider saving your intended contribution in your mortgage offset account first until you're ready to make a personal super contribution.
  • Check out the ASIC SmartMoney Super v Mortgage Repayment Tool that compares the effect of making an additional contribution to super or paying off your mortgage.
Caution: Whether you opt for salary sacrifice or claiming a personal deductible contribution to super, there are complex rules to be followed, so talk with us first about the right super contribution strategy for you.

Contact us today here to see if we're the type of people you'd like to work with.
Drew Browne

Drew specialises in helping people protect and provide for what matters most in their lives. He's an award-winning writer, speaker, financial adviser and business strategy mentor. His company Sapience Financial and Investment Services is committed to using business solutions for good in the community, is a member of the international B1G1 Business for Good Giving Community and certified as a B Corp in 2015. In 2017 Drew was recognised in the inaugural Australian Westpac Businesses of Tomorrow national awards. Drew writes for successful Small Business Owners and Entrepreneurs at Smallville, his blogs can be read on Amazon.com and you can connect with him on LinkedIn.

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