How contributing extra money into your superannuation fund can save you thousands of dollars in tax

Disclaimer: This information and the example discussed is of a general nature only and cannot be relied upon to fit in with your particular circumstances. I recommend you get into contact with your own advisors before undertaking any transactions.

Welcome to my first ever blog post. The point of this blog is to educate and empower my clients so they can take advantage of opportunities and be proactive about their tax and accounting.

One way to reduce the amount of income tax you pay is the reduce your taxable income. There is a perfectly legitimate way to do this, and it is by contributing extra money into your superannuation fund. In the 2023 Financial Year each of us is able to contribute a maximum cap of $27,500 into our superannuation fund and claim a deduction for it. The $27,500 includes employer contributions, salary sacrificed contributions throughout the year and any lump sum amounts you have contributed and claimed a deduction for. Let me show you how this works with an example:

Bill has a taxable income of $130,000. He makes an additional superannuation contribution of $10,000 before the 30th June and claims a deduction for it. His marginal tax rate plus Medicare levy is 39 cents in the dollar so he saves $3,900 tax in his personal tax return. His superfund will pay 15 cents in the dollar tax on the contribution. Outside of his super fund it has cost him $6,100 to put $10,000 into his super fund as he will either have his tax bill reduced by this amount or receive a refund for the $3,900 tax saved on the $10,000 contribution. Overall, he will save a total $2,400 tax ($3,900 - $1,500). How much tax you can save will depend on many factors including your taxable income and how much you are personally able to contribute.

From the 2020 Financial Year the Government brought in a special rule to allow you to make extra contributions above the cap for the current year to take advantage of any unused cap over the previous five years. To use the unused cap amount you must have a total super balance at the end of the previous financial year of less than $500,000, and your contributions that you are claiming a deduction for must exceed the cap in the current year.

This is all well and good if you have a stack of cash available not being used for anything else at the end of the financial year, but the good thing is you don’t have to put in the maximum amount to be able to save some extra tax. You can make extra contributions at any time during the financial year but don’t leave it too close to the 30th of June as your superannuation fund needs adequate time to receive the contribution to make it count for the current financial year.

If you have any questions about this or would like to talk to me about how contributing extra money to your superfund could save you tax, please get into contact with me through my work with me page.

Best regards,

Rebecca Wilson