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Contributing to super: Personal deductible contributions

Written and accurate as at: Oct 12, 2021 Current Stats & Facts

When comparing investment structures, super is widely considered to be one of the most tax-effective for accumulating wealth and funding retirement needs.

In terms of accumulating wealth inside super via contributions, there are two main contribution types—concessional contributions (the focus of this article) and non-concessional contributions.

A concessional contribution generally refers to a contribution that can be claimed as a tax deduction by the contributor. This can encompass mandatory (including Super Guarantee) and voluntary (including salary sacrifice) employer contributions, as well as personal deductible contributions.

Importantly, the Super Guarantee can be a key foundation for accumulating wealth. Though, on its own, it may not be enough, depending on an individual’s vision and funding requirements for retirement.

Therefore, personal deductible contributions—and other contribution types—can play a vital part. Below is an overview of concessional contributions, with a focus on personal deductible contributions.

Please note: Due to this focus, no reference is made to other contribution types.

 

Personal deductible contributions

Contribution limits

For the 2021-22 financial year, the annual concessional contributions cap limit is $27,500—the amount that can be contributed to super in terms of concessional contributions.

Please note: The carry-forward provision allows an individual that has exceeded the $27,500 limit to carry forward unused concessional contributions cap amounts (from the 2018-19 financial year onwards) on a rolling basis for a period of up to 5 years—provided their total super balance for the prior 30 June was below $500,000. For more information regarding this, please click here.

Contribution eligibility conditions

Aside from the limit on the amount that can be contributed, age and work test conditions can also apply. Please see the table below for more details.

 

Contribution eligibility: Concessional contributions

Contribution type

Conditions

Maximum age*

Work test

Mandatory employer contribution

(includes Super Guarantee contributions)

None

No

Voluntary employer contribution

(includes salary sacrifice contributions)

75^

Yes, if aged 67+ at time of contribution

Personal contribution

 (includes personal deductible contributions)

*Member age from which contribution can’t be accepted.

^Must be received within 28 days of the end of month in which the member reaches age 75.

 

In conjunction with the above, an individual’s Tax File Number (TFN) needs to have been supplied to their super fund—without it, a super fund is required to tax employer contributions at 47% and can’t accept any member contributions (or the Government co-contribution).

Contribution taxation

The amount of concessional contributions (including salary sacrifice and Super Guarantee, as well as personal deductible contributions) is reduced by a contributions tax of 15%.

When considering salary sacrifice and personal deductible contributions, this may be lower than an individual’s marginal tax rate. Please see the table below for more details.

 

Individual resident tax rates (2021-22 financial year)

Taxable Income

Marginal tax rate*

Tax payable

$0 – $18,200

Nil

Nil

$18,201 – $45,000

19%

Nil + 19% on each $1 over $18,200

$45,001 – $120,000

32.5%

$5,092 + 32.5% on each $1 over $45,000

$120,001 – $180,000

37%

$29,467 + 37% on each $1 over $120,000

$180,001 +

45%

$51,667 + 45% on each $1 over $180,000

*The 2% Medicare levy may be in addition to this rate.

 

Please note the following:

  • If an individual has income and concessional contributions totalling more than $250,000, then they can pay an additional 15% tax (Division 293 tax) on some or all of their concessional contributions.
  • If an individual has adjusted taxable income of $37,000 or less, then they may be eligible to receive the low-income super tax offset (up to $500), subject to meeting certain other eligibility criteria.

Also, concessional contributions that exceed an individual’s contribution limit (after considering any unused cap amounts carried forward), will be included in assessable income and taxed at their marginal tax rate, less 15% tax already paid, together with associated earnings.

Claiming a tax deduction

According to the most recent ATO data*, for the 2018-19 financial year, 436,952 individuals claimed on average $13,395 in deductions for personal super contributions—the median being $12,500.

To claim a deduction for personal contributions an individual makes to their super, they can’t be FHSSS recontributions, COVID-19 recontributions, or Downsizer contributions, and an individual needs to have:

  • met the age and work-related super contribution eligibility rules
  • made a personal contribution to an eligible fund (eg not a Commonwealth Defined Benefit or Constitutionally Protected Fund) and retained those contributions within that fund
  • provided a valid notice of intent to claim a deduction for the personal contribution to their super fund and received acknowledgement by their super fund
  • sufficient assessable income (ie the deduction can’t result in, or add to, a tax loss)
  • claimed a deduction for the amount of the contribution stated on their notice of intent when completing their tax return for the relevant financial year.

Salary sacrifice and personal deductible contributions

The table below provides a brief general overview of salary sacrifice and personal deductible contributions. It’s important to note that the appropriateness of using one over the other, or using a combination of both, can depend on an individual’s personal circumstances, now and in the future.

 

Salary sacrifice and personal deductible contributions

Contribution type

Overview

Pros

Cons

Salary sacrifice contributions

Once the arrangement is established between an employee and their employer, regular contributions are made to the employee's super fund.

 

The associated tax benefit is received now as part of an individual’s take-home pay.

Some employers may not offer their employees the option to engage in a salary sacrifice arrangement.

 

 Since salary sacrifice contributions can’t be backdated, the amount of salary sacrifice contributions is limited to the salary yet to be paid.

 

It may be harder to gauge an individual’s proximity to their concessional contributions cap limit.

Personal deductible contributions

No need for an arrangement to be established between an employee and their employer—however, with this, discipline can be required to set aside money for its intended use.

 

The amount contributed is not limited by the salary yet to be paid.

 

It can allow flexibility for an individual to decide on the amount to claim as a deduction at the end of the financial year.

A notice of intent needs to be lodged by an individual with their super fund.

 

The associated tax benefit is received after an individual has included the relevant details in their tax return.

 

Other key considerations

As personal deductible contributions are made from after-tax income, prior to lodging a notice of intent to claim a tax deduction, it’s vital that an individual consider whether:

 

If you have any questions regarding your annual super statement, please contact us.

*Australian Government, Australian Taxation Office. Taxation Statistics 2018-19 Individuals - Table 6.

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