With tax time just three months away, we’re well into that period of the year where you need to be looking at tax planning in order to keep your tax bill for the year down, or boost your refund. The easiest way to do that is by triggering tax deductions that will then reduce your taxable income – but that’s easier said than done!
However, if you have some spare cash, you can potentially do just that by making additional concessional contributions to your super fund, up to your concessional contributions cap (currently $27,500) and claim an income tax deduction for doing it.
Prior to 1 July 2017, only the self-employed and those not working were able to claim such a tax deduction (and then only if you received less than 10 per cent of your total assessable income from employment).
The removal of the 10 per cent income restriction greatly increases the capacity for you to top up your super fund, provided you don’t breach your concessional contributions cap. The super guarantee payments made by your employer, as well as any salary sacrificed contributions, are also included in your concessional contributions so effectively the amount you can pay into super through a tax deductible contribution is the difference between those other contributions and the $27,500 cap.
A 15 per cent contributions tax is deducted from your super fund for any superannuation contribution that has been claimed as a tax deduction. If you pay tax at the highest tax rate (45 per cent), you can claim a deduction for 45 per cent of the contribution but your super fund will only pay tax at 15 per cent on the amount contributed – a net gain of 30 per cent!
If you are aged between 65 and 74 years of age, you’ll still need to pass the work test to make a tax deductible contribution. That means that you have to work 40 hours or more in a consecutive 30 day period in the financial year in order to make contributions
Example:
Todd is a full time dental assistant. During 2022-23, he earned $70,000 before tax. Todd has no other income. Todd makes a $15,000 personal contribution to an eligible superfund and notifies them that he intends to claim a deduction. Todd’s superfund acknowledges that Todd will claim a $15,000 deduction and taxes the contribution at 15 per cent. Todd is eligible to claim a deduction for $15,000, which will reduce his tax by his marginal tax rate (32.5 per cent), and does this in his 2023 income tax return.
Tip: as well as making super contributions from your self-employed income or employment income, it is also possible to make super contributions from investment income (including dividends or rental income) and capital gains.
If you want to claim a tax deduction for your super payment, it must be made by 30 June and you need to advise your super fund that you’ve made the payment by the time you lodge your tax return. Your super fund can give you guidance on how to complete the form and there’s a standard form on the ATO website here.
Written by Mark Chapman, director of tax communications at H&R Block.
Did you know that you contributing to your super can maximise your tax return? Let us know in the comments section below.
Also read: Why many Aussies will receive smaller tax refund this year
Disclaimer: All content on YourLifeChoices website is of a general nature and has been prepared without taking into account your objectives, financial situation or needs. It has been prepared with due care but no guarantees are provided for the ongoing accuracy or relevance. Before making a decision based on this information, you should consider its appropriateness in regard to your own circumstances. You should seek professional advice from a financial planner, lawyer or tax agent in relation to any aspects that affect your financial and legal circumstances.
