Grow your super, reduce your taxable income: It’s a win win

When life’s a balancing act, the last thing you want to worry about is if your super is working as hard as you are, let alone working to ease the financial burden.

With careful superannuation planning, there are contribution strategies you can use to grow your super while reducing the tax you pay. And to make it even better, some don’t require much effort on your end.

Maximising super while managing life expenses

Sometimes it feels that once we reach 30, everything seems to get super busy with career growth, mortgages and family responsibilities. While you are balancing all these commitments, rest assured that you can easily grow your super and take advantage of tax savings at the same time. Did you know that you only pay 15%* tax on super contributions?

Use our super contributions calculator to see whether a before-tax super contribution strategy or an after-tax super contribution strategy is right for you.

Example: Peter, 42, Cybersecurity Specialist
Peter earns $155,000 a year and wants to reduce his tax bill while building his super. His current super balance is $140,000. He contributes an extra $800 per month before-tax through a super contribution strategy called salary sacrifice, amounting to $9,600 for the year. This reduces his taxable income from $155,000 to $145,400. Since he hasn’t maxed out his concessional contribution cap (payments put into super from pre-tax income) in previous years, he uses the carry-forward rule to add $20,000 more to his super and reduce his taxable income further.
He also makes a $3,000 after-tax contribution to his wife’s super known as a spouse contribution, which qualifies him for a tax offset of up to $540, provided his wife’s annual income is less than $40,000. If his wife income exceeds this threshold, the tax offset will not apply.

There are also other ways to make voluntary contributions to your super for you to consider. 

If you make after-tax contributions to your super, you could be eligible for a government co-contribution. Super co-contribution is an Australian Government incentive to help people earning less than $60,400 per year (FY2024-25) grow their superannuation. If that's you, then for every $1.00 you pay into your super, the government will contribute up to 50¢ to a maximum of $500 per financial year. The amount the government co-contributes will depend on your income.

For some after-tax super contributions you can submit a Notice of intent to claim a tax deduction form to claim the contribution as a tax deduction, which reduces your taxable income and lowers the amount of tax you pay. Your contribution is then treated as a concessional (before-tax) contribution at the rate of 15%. Contributions that you claim a tax deduction for do not qualify for the co-contribution.

Takeaways 

• Salary sacrifice, if available to you, is a super contribution strategy that’s a tax-effective way to boost super and requires little effort on your part. 
• Carry-forward concessional super contributions allow you to use unused caps from previous years.
• Spouse contributions can provide a tax offset of up to $540 to you, provided your spouse’s annual income is less than $40,000.
• Think about investing for the long-term through your super while balancing spending associated with your busy lifestyle.

If you’re unsure where to start with your super, we’re here to help – you can book a complimentary 15-minute chat with a super specialist at a time that suits you.

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This article is current at the date of publication and is subject to change. It contains general information only and does not take into account of your specific objectives, financial situation or needs or personal circumstances. You should seek personal advice or professional financial advice, consider your own circumstances and read our Product Disclosure Statement (PDS) before making a decision about Prime Super. For a PDS and Target Market Determination call 1800 675 839 or visit the primesuper.com.au/pds. Prime Super Pty Ltd ABN 81 067 241 016 AFSL 219723 RSE L0000277 is the (Trustee), of Prime Super ABN 60 562 335 823 RN 1000276.

* Concessional contributions such as salary sacrifice are generally taxed at 15% when received by the fund, however a higher rate of tax may be payable on these contributions if your income and before-tax contributions are more than $250,000 in a financial year, or if you exceed your concessional contributions cap.