The great thing about super is that you generally pay less tax – both on the money that goes into your super, and on the earnings your super makes.
There are several ways you can contribute to your super, depending on your personal circumstances, which may help you manage the amount of tax you pay.
If your income is below $250,000 you’ll generally pay just 15% tax (or 30% tax if your income is greater than $250,000) on superannuation contributions made from your pre-tax salary, including employer Super Guarantee and salary sacrifice contributions.
Earnings you make on your money within super are taxed at a maximum of 15%. If you’re receiving a pension through your super, those earnings are tax-free. The same investment earnings outside super may be taxed at your marginal tax rate.
That being said, here are some tips to save on taxes using your superannuation:
Get professional advice
Firstly, tax can be complex, so you should consider discussing your personal situation with your accountant or a taxation adviser.
If you’re a higher income earner, boosting your super might help you reduce your marginal tax rate.
If you’re taking a career break or earning a lower wage, it could be worth looking into opportunities to help you contribute to your super.
Don’t get caught above the cap
When you make contributions into your super, make sure you don’t go above the contribution caps.
Once you exceed these caps, the tax advantages won’t apply – your super contributions could be taxed at up to 94%.
You can find out more about contribution caps at the Australian Taxation Office (ATO) website.
Here are 5 ways you can contribute to your super to help you save tax:
1. Salary sacrifice
You can ask your employer to pay some of your salary into your super. This salary sacrifice is usually on top of the Superannuation Guarantee minimum percentage payments that your employer is obliged by law to contribute.
It’s important to check how your employer treats salary sacrifice contributions before putting this strategy in place.
What’s the tax concession?
Your salary is sacrificed straight into your super, so it’s taken from your gross (before-tax) pay. This means it’ll be taxed at 15%, unless you’ve exceeded the concessional contributions cap.
From 1 July 2017, if you earn more than $250,000 a year, you may be subject to an additional 15% tax.
There’s a limit to how much you can contribute to your superannuation that is concessionally taxed. You can find out the most up-to-date information on contributions caps on the Australian Taxation Office (ATO) website.
Keep in mind that unlike the employee super guarantee, salary sacrificing isn’t something employers are obliged to offer. You’ll need to speak with your employer to check if it’s an option available to you.
2. Government co-contribution
How much you earn and contribute to your super determines whether you’re entitled to receive a government co-contribution, and, if so, how much. The maximum co-contribution is $500 each year you’re eligible.
What’s the tax concession?
A Government co-contribution isn’t included as part of your taxable income, so you don’t pay any tax on it when it’s paid into your super.
3. Personal super contributions
You can boost your super by adding your own contributions to your super fund or into your spouse’s super fund.
Personal super contributions are the amounts you contribute to your super fund from your after-tax income (that is, from your take-home pay).
These contributions:
- Are in addition to any compulsory super contributions your employer makes on your behalf
- Don’t include super contributions made through a salary-sacrifice arrangement.
Personal contributions are non-concessional contributions, and will count towards your non-concessional contributions cap unless you’ve claimed a tax deduction for them.
If you claim a tax deduction for personal super contributions, they become part of your concessional contributions. Spouse contributions aren’t eligible for a tax deduction, but your spouse may be eligible for a spouse contribution tax offset of up to $540 if their income is $37,000 or less.
You may be able to claim a tax deduction on any personal super contributions you make until you turn 75.
If you’re aged between 65 and 75, you’ll need to meet the work test to be eligible to contribute to super and claim the deduction.
From 1 July 2019, a work test exemption may apply if you have a total superannuation balance of less than $300,000 and you met the work test in the previous financial year.
To claim a tax deduction for personal contributions, you’ll need to complete and lodge a valid notice of intent with your super fund. This valid notice needs to be acknowledged (in writing) by your fund before you can claim the deduction in your tax return.
You can check if you’re eligible to claim a deduction for personal super contributions on the ATO website.
What’s the tax concession?
Claiming your personal super contributions as a tax deduction, or making a downsizer contribution, may reduce your taxable income. This can reduce the total amount of tax you pay.
4. Spouse contributions
The ATO defines a spouse as another person (of any sex) who:
- You’re in a relationship with, registered under a state or territory law; or
- Although not legally married to you, lives with you on a genuine domestic basis in a relationship as a couple.
What’s the tax concession?
If you’re in a relationship and have made contributions under the threshold to your spouse’s super fund or retirement savings account (RSA) during the financial year, you may be entitled to a spouse contribution tax offset if your spouse was under 70 at the time the contribution was made.
5. Super contribution splitting
Some super funds let you transfer some of your before-tax contributions, usually from the previous financial year, to your partner’s super account.
Examples of before-tax contributions include employer contributions and personal contributions where you’ve claimed a tax deduction. These are also known as concessional contributions.
How does it work?
You can transfer concessional contributions you already made in the previous financial year (which counted toward your contributions cap) to your spouse’s superannuation account. The maximum you can send to your spouse’s account is the lesser of:
- 85% of your concessional contributions for the financial year; or
- The concessional contributions cap for that financial year.
What’s the tax concession?
This can be a way to top-up your partner’s super so they don’t fall behind.
The amount you send to your spouse’s super account won’t count towards their cap. This is because it was already counted against your cap when you made the original contribution.
By splitting super contributions between you and your spouse, you may be able to provide superannuation and pay for insurance premiums for your non-working or low-income spouse. Also, you may be able to manage your transfer account balance to be within the $1.6 million cap when you retire.
This page is intended to provide general information only and does not take into account your individual objectives, financial situation or needs. Taxation considerations are general and based on present taxation laws and may be subject to change. You should seek independent, professional tax advice before making any decision based on this information.
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