By making personal contributions to your super, you may be able to claim a tax deduction to reduce your tax liability which may allow you to pay less tax and invest more in super. If you have not fully used your concessional contribution cap in previous years, now might be the time to make a larger personal deductible super contribution.
Personal deductible super contributions
If you make a personal super contribution, you may be able to claim the contribution as a tax deduction and reduce your taxable income. The contribution will generally be taxed in the fund at the concessional rate of up to 15%, instead of your marginal tax rate which could be up to 47%. Depending on your circumstances, this strategy could result in a tax saving of up to 32% and enable you to increase your super.
Concessional contributions caps
Personal deductible super contributions like super guarantee and salary sacrifice contributions count towards your concessional contribution cap. An annual cap on concessional contributions applies each financial year. The concessional contributions cap for the 2021/2022 financial year is $27,500 but if your total super balance last 30 June 2021 was less than $500,000 your concessional cap may be higher. In fact, your concessional cap might be over $100,000 if your fund has not received a concessional contribution in the last few years.
Carry forward concessional contributions
Your unused concessional contributions cap can be carried forward for up to five years allowing a concessional contribution greater than $27,500. Unused concessional contributions from the 2018/19, 2019/20 and 2020/21 financial years can be used in the current financial year if your total super balance at 30 June 2021 is less than $500,000.
Now may be a good opportunity to use any available carry forward concessional contributions to reduce your tax and build super for retirement. For example, you may have realised a large capital gain, received a large bonus or simply received a pay rise and would like to make a larger deductible super contribution.
How can you claim the deduction?
To be eligible to claim the super contribution as a tax deduction, you need to submit a valid ‘Notice of Intent’ form to your super fund. You will also need to receive an acknowledgement from the super fund before you complete your tax return, start a pension, withdraw or rollover money from the fund to which you made your personal contribution. Make sure you can utilise the deduction – as it is generally not tax-effective to claim a tax deduction for an amount that reduces your assessable income to a point where you are not paying any tax. This is because you would end up paying more tax on the super contribution than you would save from claiming the deduction.
Disclaimer: This newsletter has been issued by Consultum Financial Advisers Pty Ltd (Consultum) | ABN 65 006 373 995 | AFSL 230323 an Australian Financial Services Licensee.
Any advice or information in this publication is of a general nature only and has not taken into account your personal objectives, financial situation and needs. Because of that, before acting on the advice, you should consider its appropriateness to you, having regard to your personal objectives, financial situation and needs. The information in this document reflects our understanding of existing legislation, proposed legislation, rulings etc as at the date of issue. In some cases, the information has been provided to us by third parties. While it is believed the information is accurate and reliable, this is not guaranteed in any way. Opinions constitute our judgement at the time of issue and are subject to change. Past performance is not a reliable guide to future returns.