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 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 below 65, there is basically no restriction.
The ability to make personal deductible superannuation contributions is new. 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 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 come to talk to us to discuss whether extra personal contributions make sense in your case.
The tax component of the above analysis was prepared by Dover Financial Advisers, a registered tax (financial) adviser.