4 super ways to make the most of the super tax rules
Contributing to super can be a fantastic way to save for the future, but there’s an added advantage that’s often forgotten—super can also be a great vehicle to save on tax. Here are 4 ways to make the most of tax incentives.
1. Salary Sacrifice
Concessional (before-tax) contributions, also known as salary sacrificing, is an arrangement between you and your employer where you agree for them to pay part of your before-tax salary into your super. You nominate how much you want to contribute each pay cycle and your employer will pay this on top of the legislated 11% super guarantee amount1.
What’s the tax incentive?
Instead of paying tax at your marginal rate, you’ll pay only 15% tax on your money as it goes into super (if you earn under $250,000 per year). Keep in mind, a current concessional contribution cap of $27,500 applies and there may be additional tax if you exceed your limit.
For example, Lily is a 30-year-old earning an annual salary of $80,000. She decides to salary sacrifice $100 a fortnight into her super. By doing this she has an extra $141,300 in her super account at retirement and saves $897 per year on tax2.
2. The Government Co-Contribution
The Government Co-contribution provides eligible workers earning less than $58,445 in 2023/24 with a boost of up to $500 to their super. The co-contribution works on a sliding scale depending on how much you earn and how much you contribute.
What’s the tax incentive?
You pay no tax on the government co-contribution because it does not form part of your taxable income.
3. Personal super contributions
Personal after-tax contributions (also called non-concessional) are contributions you make to your own super from your take home pay i.e. after tax has been taken out. These super contributions are also known as non-concessional (meaning after-tax) and count towards your non-concessional contributions cap. You can make a one-off super contribution or set up a regular, ongoing payment through your employer or financial institution.
What’s the tax incentive?
A non-concessional contribution does not provide you with an immediate tax incentive, but it can reduce your taxable income in the future. This can happen because investing earnings in your super have a maximum tax rate of 15% and there is no tax on investment earnings in an income stream when you’re over 60.
You may also be able to change these contributions over to before-tax contributions if you decide to and you can then claim a deduction on them when you do your income tax return.
4. Spouse contributions
Spouse contributions are contributions made from your after-tax income to your partner. They are classed as non-concessional contributions and the same (non-concessional) rules apply.
What’s the tax incentive?
If your spouse / partner has an income below $37,000 and you contribute $3000 to their super, you may be able to claim a tax offset of up to $540.
Calculate how much you could contribute
Making additional super contributions now can make a significant difference to your final balance when you wind-down work - thanks largely to the magic of compound interest.
Check out our Spare change calculator to see how much you could afford to contribute now and see how it could add up for you in the future.
Got a question on super contributions?
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Information correct as at 14 November 2023.
1 11% is the legislated super guarantee (SG) for the 2023/24 tax year
2 Calculations made using https://www.calc.help/industrysuper/add-extra-to-your-super