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 nominated 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 aged below 65, there is basically no restriction.
The ability to make personal deductible superannuation contributions is new. Up until now, 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 have never heard of one that did). 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!
Your personal contributions will be taxed at 15% when they arrive into the superannuation fund. Provided your personal marginal tax rate is more than 15%, 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.
Before you make an extra contribution, we recommend you start a conversation with us to discuss whether extra personal contributions make sense in your case.
You need to consider with your financial planner (or adviser), your objectives, financial situation and your particular needs prior to making an investment decision. Sensibly Pty Ltd and its authorised representatives (or credit representatives) do not accept liability for any errors or omissions of information supplied on this website
Nick Shanley, Steve May, Luke Styles and Shanley Financial Planning T/A Steve May Financial Services are Authorised Representatives / Corporate Authorised Representative of Sensibly Pty Ltd, AFSL 533923. Please refer to our website at www.stevemayfs.com.au to reference our Financial Services Guides.
