How Can I Benefit From A Personal Deductible Contribution Strategy?

By making personal contributions to your super, you may be able to claim a tax deduction to reduce your tax liability. See how in the following example:

Helen is a 43 year old self-employed florist earning $45,000 p.a. and is also employed part-time as a teacher earning $30,000 of employment income. Her employer makes Superannuation Guarantee contributions of $2,850 p.a. which count towards the concessional contributions cap ($25,000 for the 2017/18 financial year). Her marginal tax rate is 34.5% (including Medicare levy).

During Helen’s annual review, her financial adviser recommends she should contribute more to super as she nears retirement. She advises Helen to make a $20,000 personal deductible contribution to super to increase her retirement savings and to reduce her taxable income. Helen will be required to submit a valid ‘notice of intent to claim a tax deduction’ form.

The personal deductible contribution is subject to 15% contributions tax in the super fund, instead of her marginal tax rate of 34.5%. This results in a net tax saving of $3,900 (19.5% of $20,000). Helen also benefits by having her retirement savings grow in a low tax environment.

To discuss whether a Personal Deductible Contribution Strategy is appropriate for your circumstances, call Newcastle Financial Planning Good today to book a meeting with one of our specialist Financial Advisers.

Notes:

1. An additional 15% tax may apply to certain concessional contributions if your income plus concessional contributions exceed $250,000 in the 2017/18 financial year.
2. Individuals can elect to withdraw up to 85% of their excess concessional contributions from their superannuation. Depending upon the amount effectively withdrawn, excess concessional contributions left in the super fund may also count towards the non-concessional contribution cap.