Tax Deductible Super Contributions
Claiming a deduction for personal contributions to superannuation can be a tax effective way of saving for retirement. These are known as ‘personal concessional contributions’. Personal concessional contributions are made by a person contributing funds to their superannuation, advising their superannuation fund that they intend to claim a tax deduction, then claiming the deduction when they submit their tax return.
If you are employed, generally the more common method of making before tax contributions to superannuation has been to enter into a salary sacrifice arrangement with your employer. However, since 1 July 2017, making personal concessional contributions is another allowable option.
Contributions into superannuation, when a tax deduction is claimed, are generally taxed at 15%. This may be lower than the marginal tax rate which applies to taxable income, including income earned from being self-employed or employed. For the 2018/19 financial year, this potential tax saving applies so long as your total concessional contributions are not more than $25,000.
Prior to making a personal concessional contribution to superannuation, you should ensure that:
You are eligible to make a voluntary contribution to superannuation. Broadly, those aged 18-65 are eligible, and those aged 65-75 are eligible if they meet a work test.
Within an allowed timeframe, you advise your superannuation fund of your intention to claim a tax deduction, and your tax return reflects this election.
If you are an employee, you allow for the fact that your total concessional contributions include any compulsory superannuation guarantee and salary sacrifice contributions.
Individuals won’t be able to access amounts they contribute to superannuation until they meet a condition of release. Generally, this occurs upon the earlier of either reaching age 65, or fully retiring after reaching preservation age (currently age 57, however a staggered increase to age 60 will occur over time).
If your total income is more than $250,000 a year you may also be subject to an additional tax of 15% (known as Division 293 tax) taking the total up to 30%.
The impact a personal concessional contribution will have on your cash flow, and whether you can afford this reduction.
Personal super contributions-deduction notices
The 10 per cent test used to determine eligibility to make personal deductible contributions was removed with effect from 1 July 2017. Individuals are generally able to claim a tax deduction for personal contributions made in 2018/19, subject to other eligibility conditions being met.
Anyone intending to claim a deduction for personal super contributions must lodge a deduction notice, using the approved form, with their fund before the earlier of:
the day they lodge their tax return for the year in which the contribution was made; or
the end of the financial year after the financial year in which the contribution was made.
This information is general information only. It does not constitute any recommendation or financial product advice. It provides an overview or summary only and it should not be considered a comprehensive statement on any matter or relied upon as such. The information has been prepared without taking into account your personal objectives, financial situation or needs and so you should consider its appropriateness having regard to these factors before acting on it. Any tax position described in this publication is a general statement and is for guidance only