Similar to salary sacrifice arrangement, you can make personal contributions to super and claim a tax deduction for these contributions. By making a personal super contribution and claiming it as a tax deduction, you’ll reduce your taxable income and invest more in super.
The contribution will generally be taxed in the fund at the concessional rate of up to 15 per cent. This is instead of your marginal tax rate which could be up to 47 per cent including Medicare Levy.
An additional 15 per cent tax applies to concessional super contributions if your combined income and concessional contributions exceed $250,000. Depending on your circumstances, this strategy could result in a tax saving of up to 32 per cent and enable you to increase your super.
We recommend you see your financial adviser to discuss whether salary sacrifice or personal contributions would work for you.
Contributing some of your pre-tax salary into super could help you to reduce your tax and invest more for your retirement.
Let's say you have an income of $60,000 and you chose to salary sacrifice $10,000 over the course of the year. Your taxable income would drop to $50,000. This means you’d pay around $7,797 in tax instead of $11,047. These figures are based on ATO Simple tax calculator for the 2016-17 income year, with a full year resident status including Medicare Levy.
Salary sacrifice isn't for everyone though. It is more effective if you earn over $37,000 and it’s important to remember not to go over the $25,000 before-tax contributions limits otherwise you could be paying extra tax.
You’ll need to remember the new cap for super contributions which from July 1 2017, for before-tax contributions, is $25,000 for everyone, regardless of your age. There are tax penalties if you go over this cap. Remember, compulsory employer contributions are included in your concessional contributions cap.