When you retire, your superannuation is likely to become an important source of your income. That’s why it’s a good idea to top it up while you are working.
But did you know, there are also some excellent tax benefits you can take advantage of right now – just by making your own voluntary superannuation contributions?
Generally, money invested in super is taxed at a lower rate than your personal income tax rate.
In the lead-up to 30 June, there are some opportunities to save tax with super contributions that you should be aware of.
Tax benefits from superannuation contributions
There are several ways you can get tax benefits from super contributions:
How “concessional” super contributions are taxed
Concessional (before tax) super contributions include employer super contributions made on your behalf, any salary sacrifice contributions you make, or any personal contributions that you claim a tax deduction on in your tax return. These contributions are taxed at 15% when they are received by your super fund (up to a limit of $27,500 per year for 2024 and $30,000 per year in 2025), provided your annual earnings combined with superannuation contributions are less than $250,000 annually.
Personal super contributions are especially useful for people who are on higher marginal tax rates or if their employer refuses to set up a salary sacrifice arrangement.
The people who would benefit the most are those who earn above $45,000 per year, as this is where the marginal tax rate plus Medicare Levy rises to 34.5%. Claiming a tax deduction on super contributions effectively makes your tax rate only 15%. That’s a big tax saving!
Catch up super contributions
If you haven’t made maximum annual super contributions in any year from 2019 onward, you can make “carry-forward” concessional super contributions if you have a total superannuation balance of less than $500,000. You can access their unused concessional contributions caps on a rolling basis for five years. Amounts carried forward that have not been used after five years will expire.
How low-income earners are taxed
If you’re a low-income earner (earning up to $37,000 per year), the low-income superannuation tax offset ensures that you don’t pay a higher rate of tax on your super contributions than your income tax rate. The offset will be paid directly to your super account and the payment will be equal to 15% of your concessional contributions for the year, capped at a maximum of $500.
Individuals who earn between $43,445 and $58,445 during the 2024 financial year may also be eligible for super co-contributions from the government of 50 cents for each dollar, up to a maximum of $1,000 in non-concessional (after tax) contributions.
How high-income earners are taxed
If you earn more than $250,000 a year (including super contributions), your concessional contributions are taxed at an additional 15%, bringing the total tax on these contributions to 30%. However, this is still less than your marginal income tax rate of 47%. This extra 15% is known as Division 293 tax. Only the concessional contributions which make your total income exceed $250,000 are subject to the additional tax.
If your concessional contributions exceed the concessional contributions cap of $27,500 per year, the excess is included in your tax return and taxed at your marginal tax rate (less an allowance for the 15% already withheld by your super fund). You can choose to withdraw some of the excess contributions to pay the additional tax.
Contact us today if you would like to discuss saving tax with super contributions. There are many things we need to check for you to ensure you don’t exceed your super caps. You may need to seek advice from our KMT licenced adviser, and you must get the paperwork right plus the timing of your contributions is crucial to entitle you to a tax deduction.
The sooner we get started with your tax planning strategies, the sooner we can help you save tax.
About our advisers:
Chrisanthe Lekatis is renowned for her expertise in management accounting, virtual CFO services, and top-tier business advice. She empowers management with tailored strategies for success, streamlining processes to achieve efficient and cost-effective outcomes. Her commitment to building trust and lasting relationships goes beyond professional excellence; it’s a personal ethos. By actively listening and understanding her clients’ businesses and goals, Chrisanthe thrives on collaborative efforts to navigate challenges and collectively achieve their aspirations. Please do not hesitate to reach out if you need assistance.
Michael Fox has been dedicated to the success of his clients, devising comprehensive wealth strategies for both personal and business growth for over 4 decades. With extensive expertise in business governance and family business succession, Michael specialises in empowering emerging businesses and family enterprises by fostering renewal, enhancing value and smooth transitions to the next generation. Please do not hesitate to reach out if you need assistance with your business valuation.
This is general advice only and does not take into account your financial circumstances, needs and objectives. Before making any decision based on this document, you should assess your own circumstances or get professional advice from a qualified accountant or financial adviser at KMT Partners.
