Tax Deductions for Superannuation Contributions

Effective 1 July 2017, all Australians aged under 65 (and those between 65 and 75 who meet an additional eligibility requirement) became eligible to make personal contributions to superannuation and claim a tax deduction for these contributions.  This provides significant taxation and retirement planning opportunities for many individuals.

It is extremely important to keep in mind that your annual cap for contributions where tax deductions are claimed (referred to as concessional contributions) is $25,000 and that this cap also includes employer contributions (both legislated Superannuation Guarantee contributions, as well as those additional contributions arranged via a salary sacrifice agreement).

Case Study

The following case study highlights the potential benefit of taking advantage of ‘concessional’ (tax deductible) superannuation contributions:

James is 52 years of age.  He is employed full-time as a draftsman in an architectural firm.  His annual salary package is $109,500.  This is comprised of $100,000 salary and $9,500 of employer superannuation guarantee contributions (SGC).

James wishes to use $10,000 of surplus cash currently held within his bank account to add to his retirement savings on or before 30 June 2019.  If he elects to make this $10,000 superannuation contribution a personal concessional contribution, he would benefit from the following:

  • Although 15% tax will be deducted from the additional $10,000 contribution, James will have an additional net $8,500 added to his retirement savings;
  • Upon lodging his 2018/19 tax return James can claim this $10,000 personal concessional superannuation contribution as a tax deductible expense on his personal tax return;
  • As James’ personal marginal tax rate is 39% (including the medicare levy), this will represent a personal tax saving of $3,900;
  • After taking into account the tax deducted on the personal concessional superannuation contribution of $1,500, the net tax saving for James is $2,400 (i.e. $3,900 personal tax saving in own name, less $1,500 contributions tax paid within his superannuation fund);
  • James total concessional contributions for the year will be $9,500 (SGC) plus $10,000 = $19,500. As such, he remains under his concessional contribution cap of $25,000 for the 2018/19 financial year.

Depending on your circumstances, you could potentially benefit from financial year end superannuation contributions (have you read our other articles about the Government Co-Contribution and Spouse Contribution Tax Offset?). 

If you would like to arrange a meeting to discuss your circumstances, and how you could benefit from financial year end planning, we encourage you to touch base with us.

The above information represents general advice only and has been prepared without taking into account your personal objectives, financial situation or needs.  Before acting on any general advice you should consider whether or not it is appropriate in regard to your personal objectives, financial situation and needs.