How to pay less tax by contributing to super

As of 2017, almost all tax-payers can make a private, personal contribution into their superannuation fund and then claim the contribution as a personal deduction when they do their tax return. You can contribute any amount provided that your total concessional contributions are not more than $25,000 in a particular year. Remember, the compulsory 9.5% superannuation guarantee contributions that your employer must make is included within this $25,000 limit.

So, if your employer has contributed $10,000 on your behalf, you can make a further contribution of $15,000.

If you are aged between 65 and 74, then you also need to meet a ‘work test’ to qualify for the tax deduction. But if you are below 65, there is basically no restriction.

What has changed?

Up until 2017, the only way to make additional deductible contributions was to organise a salary sacrifice with your employer. That could be a hassle – and, in fact, your employer could actually say no (although we never heard of one that did). However now the contributions are simply between you and your super fund – your employer does not even need to know that you have made them. This might come in handy next time you ask for a pay rise!

How will my contribution be taxed?

Your personal contributions will be taxed at 15% when they arrive into the superannuation fund. Provided your average personal marginal tax rate is more than 15% (you are earning more than $43,500 per year), then the amount that you save in tax will be more than the amount that the super fund pays in tax.

For example, if your tax rate is 37.5%, and you contribute an extra $10,000, you will receive a personal tax deduction of $3750. So the contribution only costs you $6,250 – being the $10,000 you contribute minus the $3750 tax rebate you receive. Within the super fund, only $1,500 will be paid as tax.

You have given up $6250 of spending power and acquired an asset worth $8500. That’s an immediate, guaranteed return of $2250 – 36% of the $6,250 that the contribution actually cost you.

A guaranteed return of 36% is absolutely outstanding. You simply can’t beat it.

If you have a self-managed superannuation fund, you can still make personal contributions.

The only ‘catch’ is that money contributed into super must stay there until you meet a condition of release. The most common condition of release is reaching retirement age. So, by making a contribution into your super fund, you are agreeing to keep the money there until you retire. That is why the government offers the tax incentive: to encourage us to save for our retirement.

What is the difference between holding my money outside of super versus inside of super?

Superannuation also provides a very favourable tax environment for investments. If you hold investments outside of super, and you happened to be on the top marginal tax bracket, you would pay tax at a rate of 49%.

Any investment income such as dividends or interest is only taxed at a rate of 15%.

Capital Gains Tax (CGT) is only taxed at a rate of 10%, if the investment is held for more than 12 months.

When you reach age 60 and stop working, the deal gets even better. There is a 0% tax rate on income, a 0% tax rate on capital gains, and 0% tax on withdrawals from your super.

Ready to contribute to super and claim a tax deduction?

The process is different per Superfund, however the most common process is as follows:

1. Work out how much superannuation has been paid on your salary and wage for the financial year to date. You will be able to find this on your most recent pay slip.

2. Calculate how much superannuation will be paid up until the end of the financial year.

3. Calculate how much you can contribute to maximise your concessional cap at $25,000. For example, if your employer has contributed $10,000 throughout the year, you can only contribute an additional $15,000 to max out your concessional cap.

4. Contact your Superannuation Fund to obtain to the payment details for the contribution.

5. Complete a ‘Notice of Intent to claim a tax deduction for personal super contributions’ form. You will be able to obtain this form directly from your Superannuation Fund.

It is 100% necessary to have the correct process followed when contributing to super, therefore please seek out the process from your Superannuation Fund to ensure your contribution will be classified correctly.

If you would like to discuss any of the above, please contact us any time at