Understanding Superannuation and Personal Deductible Contributions

Many of you may be preparing your annual personal tax returns and might need to consider your superannuation contributions and how to treat them for tax purposes. Superannuation, commonly known as super, is a crucial part of retirement planning in Australia. It ensures that individuals have a financial safety net when they retire. One of the ways to boost your super is through personal deductible contributions. In this blog, we'll explore what these contributions are, how to claim them, and the different types of super contributions available. 

What are Personal Deductible Contributions? 

Personal deductible contributions are voluntary payments you make to your super fund from your after-tax income. These contributions can be claimed as a tax deduction, effectively converting them into concessional contributions, which are taxed at a lower rate of 15% within the super fund. 

Notice of Intent to Claim or Vary a Deduction for Personal Super Contributions 

To claim a tax deduction for your personal super contributions, you need to submit a Notice of Intent (NOI) to your super fund and receive an acknowledgment from them. Here's a step-by-step guide on how to complete and lodge this form: 

1. Make the Contribution: Ensure your personal contribution is made to your super fund before the end of the financial year. 

2. Download the NOI Form: Obtain the Notice of Intent form from the Australian Taxation Office (ATO) website or your super fund's website. 

3. Complete the Form: Fill in your personal details, super fund details, and the amount you wish to claim as a deduction. 

4. Submit the Form: Send the completed form to your super fund. This can usually be done online, by mail, or through your fund's app. 

5. Receive Acknowledgment: Wait for your super fund to acknowledge your NOI. This acknowledgment is essential for claiming the deduction on your tax return. 

Types of Super Contributions 

There are several types of super contributions, each with its own rules and benefits: 

1. Employer Contributions: These include the compulsory Superannuation Guarantee (SG) contributions made by your employer. For the current financial year, the SG rate is 11.5%. 

   Example: Jane works for a company that pays 11.5% of her salary into her super fund as SG contributions. If Jane earns $80,000 a year, her employer will contribute $9,200 to her super fund annually. 

2. Salary Sacrifice Contributions: These are pre-tax contributions arranged through your employer. They also count as concessional contributions and are taxed at 15%. 

   Example: John decides to salary sacrifice $10,000 of his $90,000 annual salary into his super. This reduces his taxable income to $80,000, potentially lowering his income tax while boosting his super savings. 

3. Personal Contributions: These can be either concessional (if you claim a tax deduction) or non-concessional (if you don't claim a deduction). Non-concessional contributions are made from after-tax income and are not taxed within the super fund. 

   Example: Sarah makes a personal contribution of $5,000 to her super fund from her after-tax income. She decides not to claim a tax deduction, so this amount is treated as a non-concessional contribution. 

4. Government Co-Contributions: If you are a low or middle-income earner and make personal after-tax contributions, you may be eligible for a government co-contribution. 

   Example: Mark earns $35,000 a year and makes a $1,000 after-tax contribution to his super. The government may contribute up to $500 to his super fund as a co-contribution. 

5. Spouse Contributions: You can contribute to your spouse's super fund, which may entitle you to a tax offset if certain conditions are met. 

   Example: Emma contributes $3,000 to her spouse Tom's super fund. Since Tom earns less than $37,000 a year, Emma is eligible for an 18% tax offset on her contribution, reducing her tax by $540. 

6. Downsizer Contributions: If you are aged 55 or older and sell your home, you can contribute up to $300,000 from the sale proceeds to your super fund. 

   Example: After selling their home, Peter and Mary, both over 65, each contribute $300,000 from the sale proceeds to their respective super funds, significantly boosting their retirement savings. 

When and By Whom Should These Contributions Be Used? 

• Employer Contributions: Mandatory for all employees, ensuring a steady growth of super savings. 

• Salary Sacrifice Contributions: Ideal for individuals looking to reduce their taxable income while boosting their super. 

• Personal Contributions: Suitable for those wanting to maximize their super savings and take advantage of tax deductions. 

• Government Co-Contributions: Beneficial for low to middle-income earners to receive additional super contributions from the government. 

• Spouse Contributions: Useful for couples looking to balance their super savings and potentially receive a tax offset. 

• Downsizer Contributions: Great for older Australians looking to boost their super savings using proceeds from the sale of their home. 

Understanding the intricacies of each contribution type and strategically using them can significantly enhance your retirement savings. Always consider your financial situation and consult with a financial adviser to make the most of your superannuation contributions. 

Seeking advice is crucial to a successful retirement. At Wealth Effect Group, we help you understand what the best contribution strategy will be for you and your unique situation. We also help you understand how to balance your super contributions with paying down your mortgage and how best to manage this situation. We encourage you to schedule a meeting by clicking the link and booking a retirement strategy session. 

Feel free to reach out if you have any questions or need further assistance with superannuation and personal deductible contributions!