From 1 July 2017, employees can claim superannuation as a deduction
You get a tax deduction, you get a tax deduction, everyone gets a tax deduction for super contributions!
What’s the hype you ask?
If you are on a border line tax margin contributing superannuation could a) save you tax and b) help your 65-year old self, retire more comfortably.
Before 1 July 2017 only individuals who were self-employed or who’s employment income was less than 10% of their total income were able to contribute concessional contributions to their superannuation fund and claim the amount as a tax deduction in their personal tax return.
Now you don’t need a self-managed superannuation fund to be eligible to claim a superannuation contribution as a personal deduction, but you will need to notify your superannuation fund that you intend to claim your contributions as a personal tax deduction because their will be paperwork your accountant will ask for to confirm these contributions as able to be a tax deduction.
If you are over 75 years old (and reading this web article) firstly good on you for being tech savy, my father at the ripe old age of 65 only just got an email address but secondly and more importantly – unfortunately you cannot contribute any more to your super fund nor can you receive this tax deduction. Although if you are still working, its probably time to retire, take up bowling and put your feet up, after 65 years of working you’ve earned a break.
Back to the young wiper snappers, if you are saving for a house or struggles to pay the mortgage please don’t read this article. If you put money into super you are not going to get dollar for dollar back as a tax deduction.
Say I earn $65,000 (average Australian salary, apparently!).
I am currently in the 32.5c tax bracket (37,001 – 87,000).
If I put in $10,000 over the course of the next year my taxable income will go from $65,000 to $55,000 (exclude any other deduction I may have to keep it simple).
I will go from paying tax of $12,672 to $9,422. Saving tax personally of $3,250, but here’s the catch the $10,000 I contributed will be taxed at 15% ($1,500) and I won’t be able to touch this until I am 65 years old. The net tax saving is only $1,750.
So, ask yourself, is contributing to super and claiming a deduction based on my current lifestyle the right thing to do? Yes, you may save some tax now and be better off in retirement, but it should only be considered if your cashflow isn’t an issue. For most Australians $10,000 could be up to 4 months of their mortgage paid off or 20 weeks in rent, see what I meant by if you are saving or paying back a mortgage you really need to consider your cash flow.
But you don’t have to contribute massive amounts like $10,000. Keep it simple, aim for $50 a week if you can afford it, it will be a pleasant surprise in retirement.