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31 May 2018

Deductible Personal Super Contributions

Personal Superannuation Contributions – advice from financial planner Martin Reyment

Currently almost all tax-payers can make a private, personal contribution into their superannuation fund and claim the contribution as a personal deduction in their tax return. You can contribute any amount, provided your total concessional (i.e. before tax) contributions do not exceed $25,000 in one financial year.

Remember, the compulsory 9.5% superannuation guarantee contributions that your employer must make on your wages are 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 in the same financial year.

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.

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

This ability to make personal deductible superannuation contributions is new. Until now, the only way to make additional deductible super 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). 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!

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 $3,750. So, the contribution only costs you $6,250 – being the $10,000 you contribute minus the $3,750 tax deduction you receive. Within the super fund, only $1,500 will be withheld in contributions tax.

You have given up $6,250 of spending power and acquired an asset worth $8,500. That’s an immediate, guaranteed return of $2,250 – 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.

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 talk to us first to discuss whether extra personal super contributions are suitable for you.

Martin Reyment
TMC Advisory

I’m available at martin@tmcadvisory.com.au or by phone on 0407 505 862. You can also check out TMC Advisory here.


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