By making personal contributions to your super, you may be able to claim a tax deduction to reduce your tax liability.
What are the benefits?
Pay less tax by reducing your taxable income, while growing your retirement savings quicker
Retirees, self employed persons and homemakers can build wealth more effectively
Since 1 July 2017, this strategy is more widely available as employees may be eligible to make personal deductible contributions
Who can this strategy work for?
If you have a marginal tax rate above 19% or thereabouts
You want to reduce your tax payable
You are eligible to contribute
How does it work?
A personal deductible contribution allows you to reduce your taxable income. The amount of the contribution claimed as a tax deduction is generally taxed at 15% (contributions tax) in the fund, instead of your marginal tax rate.
Typically, people running a business as a sole trader or in partnership and some retired or unemployed people may make personal deductible contributions.
However, since 1 July 2017 employees may also make personal deductible contributions.
Contributions you claim as a tax deduction count as concessional contributions*.
*Concessional contributions are generally subject to 15% contributions tax in your super fund up to set limits. They generally include employer contributions such as Super Guarantee, salary sacrifice contributions and personal contributions for which a tax deduction has been allowed.
Personal deductible contributions count as income for benefits and concessions such as:
Selected Tax Offsets
Family Tax Benefit (FTB) Part A & B
Medicare Levy surcharge (income threshold)
Commonwealth Seniors Health Card
Tips and Tricks
After the end of the financial year, you will receive a letter from your super fund asking if you intend to claim a tax deduction for your personal contributions. Consult your financial adviser or tax consultant before making a decision, especially if you start a pension, withdraw or rollover your money as you may need to notify your super fund before the end of the financial year.
What now?
If you would like to start making personal deductible contributions, or if you would like more information about personal deductible contributions, do not hesitate to contact us today.