This year presents a significant opportunity for Australians to reduce their taxable income through the $25,000 concessional superannuation tax deduction.
However, this time-sensitive benefit will expire with the start of the new financial year. Acting now is essential to secure this advantage and avoid permanently losing out on substantial tax savings.
Contents
- 1 Understanding Concessional Superannuation Contributions
- 2 Annual Contribution Limits
- 3 Tax Deductions in Real Terms
- 4 Catch-Up Super Contributions: What You Need to Know
- 5 Steps to Take Advantage of This Deduction
- 6 How Salary Sacrifice Works
- 7 Potential Tax Savings with Concessional Contributions
- 8 Why You Must Act Now
Understanding Concessional Superannuation Contributions
Concessional contributions refer to pre-tax contributions to your superannuation fund, which include:
- Employer contributions under the Superannuation Guarantee (SG)
- Personal contributions claimed as tax deductions
- Salary sacrifice arrangements
These contributions are taxed at a concessional rate of 15% within your superannuation fund, which is generally lower than most marginal tax rates.
Annual Contribution Limits
The concessional contribution limit for the current financial year has increased to $30,000. This includes the contributions made by your employer under SG rules. For many individuals, employer contributions leave ample room to maximize additional personal contributions and claim significant tax deductions.
For instance, an employee earning $100,000 per year, with a compulsory super contribution rate of 11.5%, would receive $11,500 in contributions from their employer. This leaves $18,500 available under the cap for personal contributions, which can be claimed as a tax deduction.
Tax Deductions in Real Terms
If you contribute $18,500 to your super fund and claim it as a deduction, your taxable income is reduced by the same amount. For someone paying a tax rate of 32%, this results in a tax saving of $5,920. Higher income earners can achieve even greater savings due to higher tax rates.
Catch-Up Super Contributions: What You Need to Know
The catch-up contributions rule allows individuals to carry forward unused concessional contributions from the past five years. To utilize this provision, your total superannuation balance must be less than $500,000 as of June 30 of the previous financial year.
Unused amounts from previous years expire on a rolling basis. Contributions not utilized from the 2018–2019 financial year will be permanently lost after June 30, 2024.
Example of Catch-Up Contributions
- In 2018–2019, the concessional contributions cap was $25,000.
- If an individual only received $9,000 in compulsory contributions that year, they could carry forward $16,000 to use in subsequent years.
- By acting now, they can utilize this amount before it expires.
Steps to Take Advantage of This Deduction
- Check Your Eligibility: Ensure your total superannuation balance is below $500,000 and calculate your unused contributions from the past five years.
- Plan Your Contributions: Consider spreading contributions over the remaining weeks before the end of the financial year to ease the financial burden.
- Set Up Salary Sacrifice: Speak with your employer about salary sacrificing, which allows pre-tax salary to be directed into your super fund. This method reduces your taxable income and enhances tax savings.
- Make Personal Contributions: Alternatively, contribute directly to your super fund and claim a tax deduction when filing your tax return.
How Salary Sacrifice Works
Salary sacrificing is an efficient way to make additional super contributions. Contributions are deducted from your gross salary before tax, meaning less income is taxed at your marginal rate.
For example, to contribute $615 per week to your super fund, your take-home pay may only reduce by around $418, thanks to the tax savings.
Potential Tax Savings with Concessional Contributions
| Annual Income | Marginal Tax Rate | Contribution Amount | Tax Savings (Estimated) |
|---|---|---|---|
| $80,000 | 32.5% | $15,000 | $4,875 |
| $100,000 | 32.5% | $18,500 | $6,012.50 |
| $150,000 | 37% | $20,000 | $7,400 |
| $200,000 | 45% | $25,000 | $11,250 |
Why You Must Act Now
Delaying action until the last month of the financial year may result in difficulty securing the funds needed to maximize your contributions. By starting now, you can distribute contributions over several weeks, making it more manageable.
The $25,000 concessional superannuation tax deduction is an unmissable opportunity to save on taxes and boost your retirement savings.
With the impending expiry of catch-up contributions from 2018–2019, time is of the essence. Start planning now to take full advantage of this benefit and avoid permanently losing these savings.
What is the concessional contributions cap for this year?
The cap is $30,000, which includes employer contributions and any personal contributions claimed as deductions.
Who is eligible for catch-up contributions?
Individuals with a superannuation balance below $500,000 as of June 30 of the previous financial year are eligible.
How do unused concessional contributions expire?
Unused amounts from five years ago expire on June 30 each year, starting from the 2018–2019 financial year.
