Talking Money – Super choices for large tax refunds

Many of our clients are currently receiving large tax refunds when lodging their 2018 income tax returns because they are claiming personal superannuation contributions. If you earn most of your income from employment, you may want to make personal deductible superannuation contributions instead of, or in addition to, salary sacrifice.

Personal Super Contributions are now tax deductible

Since 1 July 2017, employees have been able to choose to claim personal super contributions as a tax deduction in their own tax return.

Like salary sacrifice, personal deductible contributions are generally taxed at 15% on their way into the super fund, which is usually better than paying your marginal income tax rate of up to 47%.

Some key differences are that, with personal deductible contributions:

  • you don’t have to enter into an agreement with your employer
  • you can contribute using available money from a range of sources, such as your after-tax pay, your savings, a windfall, or the sale of assets
  • you can contribute any time in the financial year, either in regular instalments, as a lump sum or both, and
  • you can easily increase or decrease the amount you contribute in line with your income and expenses.

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Claiming the tax deduction

To claim a personal super contribution as a tax deduction, there are some very important steps you’ll need to follow. First, you’ll need to submit a valid ‘Notice of Intent’ form with your super fund and receive an acknowledgement back from the fund. You also need to make sure this happens before you complete your tax return, start a pension, or withdraw or rollover the money. Otherwise you may not be eligible to claim a deduction for the full amount you want. Other conditions may also apply.

Which option is best for you?

Personal deductible contributions could be worth considering if:

  • your employer doesn’t offer salary sacrifice
  • salary sacrifice is available but it reduces other benefits such as SG contributions, holiday pay or leave loading, or
  • you want to make a concessional contribution using a bonus or another benefit or entitlement already accrued and you haven’t got the right salary sacrifice arrangement in place.
  • you want more control over how much you contribute and when the contributions are made.

Alternatively, Salary sacrifice might be a better option if you’re not the most disciplined saver. Importantly, with salary sacrifice, the contributions go straight into super from your pre-tax pay before you get a chance to spend the money.

You could even consider using both these options, combining the discipline of salary sacrifice with the flexibility of personal deductible contributions.

For example, you may want to arrange to sacrifice some of your pre-tax salary each pay period and make a personal deductible contribution at the end of the financial year when your cashflow and tax position is clearer.

You could also time the personal deductible contribution in the lead up to 30 June to make the most of the $25,000 concessional contribution cap.

Could you benefit from making personal deductible contributions?

If you’re thinking about investing more in super, we can help you decide whether making personal deductible contributions is right for you. We can also look at what else you could be doing to help you achieve the retirement lifestyle you want, including options outside the superannuation environment.

To discuss your personal situation, call us on 02 6033 2233, mention this article and ask for an appointment with one of our financial advisers for a half hour free analysis.