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Potential tax savings through super
May 2024
Key takeaways
- If you contribute some of your after-tax income or savings into super, you may be eligible to claim a tax deduction
- Making a salary sacrifice contribution into super could see you pay less tax than if you received the money as take-home pay
- If your spouse is not working or earns a low income, making an after-tax contribution into their super may see you qualify for a tax offset of up to $540.
Want to help boost your retirement savings while potentially saving on tax?
Here are five smart super strategies to consider before the end of financial year.
With all super strategies, there is specific eligibility criteria. To see if you're eligible, check the Australian Taxation Office.
1. Add to your super - and claim a tax deduction
If you contribute some of your after-tax income or savings into super, you may be eligible to claim a tax deduction. This means you'll reduce your taxable income for this financial year and potentially pay less tax.
How it works
The super contribution is generally taxed at up to 15% in your super fund (or up to 30% if you earn more than $250,000 pa from certain sources).
Depending on your circumstances, this may be a lower rate than your personal tax rate, which can be up to 47% (including the Medicare Levy) - so you could save up to 32%.
It's important to note that there are limits on the amount of personal contributions you can claim as a tax deduction each financial year. The cap—which includes both employer and personal deductible contributions—is $27,500 for 2023-24 financial year and $30,000 for the 2024-25 financial year. If you exceed this cap, you may be subject to additional tax.
You may be eligible to contribute more than cap without penalty if your total super balance at 30 June 2024 is less than $500,000 and you didn't use all your concessional caps in previous financial years. This is called catch-up concessional contributions. If you're eligible, you can use any unused concessional cap amounts from the last five financial years in addition to the $30,000 cap.
Note: To claim a tax deduction, you need to notify your super fund in writing and lodge a 'Notice of intent' form. You must also receive an acknowledgement from them.
2. Get more from your salary or a bonus
If you're an employee, you may be able to arrange for your employer to direct some of your before-tax salary, or a bonus, into your super as a salary sacrifice contribution.
Potentially you'll pay less tax on this money than if you received it as take-home pay. This is because you'll only be charged 15% tax rather than your personal tax rate which could be up to 47% (including Medicare Levy). You may pay an additional 15% tax on all or part of your contribution if your income from certain sources is more than $250,000 per annum.
How it works
Ask your employer if they offer salary sacrifice. If they do, it can be a great way to help grow your super in a tax-effective way.
Note: Salary sacrifice amounts count towards your concessional contribution cap which is $27,500 for 2023-24 financial year and $30,000 for the 2024-25 financial year—along with any super contributions from your employer and personal contributions you claim as a tax deduction.
You may be eligible to contribute more than the cap without penalty if your total super balance at 30 June 2024 is less than $500,000 and you didn't use all of your concessional caps in previous years. This is called carry forward concessional contributions. If eligible, you may use your unused concessional cap amounts from the last five financial years in addition to the $30,000 cap.
3. Boost your spouse's super and reduce your tax
If your spouse isn't working or earns a low income, you may consider making an after-tax contribution into their super.
This strategy could potentially benefit both of you as it increases their retirement savings and you could qualify for a tax offset of up to $540.
How it works
The full tax offset is available if you contribute at least $3,000 and your spouse earns $37,000 or less per year.
The tax offset reduces if you contribute less than $3,000 and/or your spouse earns more than $37,000. The tax offset is not available if your spouse earns $40,000 or more.
This contribution counts towards your spouse's non-concessional contribution cap.
4. Get a super top-up from the Government
If you earn less than $58,445 per year (will move to $60,400 from 1 July 2024) and earn at least 10% from your job or a business, you could consider making an after-tax super contribution. If you do, the government may make a 'co-contribution' of up to $500 into your super account.
How it works
The maximum co-contribution of $500 per year is available if you contribute $1,000 and earn $43,445 per year (will move to $45,400 from 1 July 2024) or less. You may receive a lower amount if you contribute less than $1,000 and/or earn between $43,445 and $58,445 per year (or between $45,500 and $60,400 from 1 July 2024).
The contribution you make counts towards your non-concessional contribution cap.
5. Convert your savings into super savings
Another way to invest more in your super is by making an additional contribution with some of your after-tax income or savings.
Although these contributions don't reduce your taxable income for the year, you can still benefit from the low tax rate of up to 15% on your super's investment earnings.
This tax rate may be lower than what you'd pay if you held the money in other investments outside super.
How it works
Before you consider this strategy, make sure you'll stay under your non-concessional contribution cap— which is $110,000 for 2023-24 financial year (will move to $120,000 from 1 July 2024). If you meet certain conditions, you may be able to 'bring-forward' non-concessional contribution limits from future years, meaning that your cap may be up to $330,000 (will move to $360,000 from 1 July 2024).
Also, to use this strategy in the current financial year, your total super balance must have been under certain limits. To make up to $110,000, your total super balance must have been below $1.9 million on 1 July 2023, and to make up to $330,000 of non-concessional contributions, your total super balance must have been below $1.68 million (in addition to meeting the other eligibility rules).
Penalties apply if you exceed the cap. You can check your available cap space my logging in to your myGov account.
The contribution caps and limits are subject to change each 1 July, and from 1 July 2024, the non-concessional cap and total super balance limits are changing. These rules can be complex. Visit ato.gov.au for more information.
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This article is issued by OnePath Funds Management Limited (ABN 21 003 002 800, AFSL 238342), and OnePath Custodians Pty Limited (OPC) (ABN 12 008 508 496, AFSL 238346, RSE L0000673) as the trustee of the Retirement Portfolio Service (ABN 61 808 189 263) and the product issuer. OnePath Funds Management and OnePath Custodians are part of the Insignia Financial group of companies, consisting of Insignia Financial Limited ABN 49 100 103 722 and its related bodies corporate (Insignia Financial Group).
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Taxation law is complex, and this information has been prepared as a guide only and does not represent taxation advice. Please see your tax adviser for independent taxation advice.
Before re-directing your super or moving your money into your product, you will need to consider whether there are any adverse consequences for you, including loss of benefits (e.g. insurance cover), investment options and performance, functionality, increase in investment risks and where your future employer contributions will be paid. Any investment is subject to investment risk, including possible repayment delays and loss of income and principal invested. Returns can go up and down. Past performance is not indicative of future performance.
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