How to save tax by claiming these super deductions (2024)

With little more than two weeks to go until the end of 2023-24, you have no time to lose to slash your ATO bill for this higher-taxed financial year. It is higher taxed because, come next financial year, on just July 1, most of us will get a tax cut.

One powerful tax-reduction technique is to claim deductions for personal super contributions – these have to be from your own pocket and after tax.

However, several years ago, the government introduced the ability to convert after-tax contributions to before-tax ones, as employer contributions are.

Let’s say you earn $50,000 a year and pay $5000 into superannuation. Your taxable income if you claim a tax deduction reduces to $45,000.

Without the $5000 tax deduction, your income tax payable (on $50,000) would be $6717. With the tax deduction, it would be $5092.

No tax would be applied to your super contribution if you didn’t claim a deduction; 15 per cent or $750 would be taken out of your super account if you did.

Compensating for that $750 super contributions tax, however, is that $1625 reduction in income tax. So, you’ve secured an $875 grand total net benefit. A higher salary and tipping more into super, of course, makes the numbers larger.

But be aware there are limits on what you can claim. If you switch your contributions from after-tax to before-tax in this way, they will be lumped in with any employer contributions and that allowance.

This is a limit of $27,500 annually this and last tax year and $30,000 annually next tax year.

You would pay higher tax on any amounts above this – but there are also carry-forward (or catch-up) provisions, which mean you could mop up unused super contribution allowances from the past five years (your total super balance must be below $500,000 at the prior June 30).

The old allowances roll off every year, with 2018-19 expiring in a matter of days.

But ignoring any unused previous-year allowances, you have barely a week to claim a tax deduction for contributions you made in the 2022-23 tax years. Unless these are approved by your super fund before the end of this financial year, you will not be able to convert them and save the tax.

And you need to pay in any money you would like to claim this year virtually immediately – contribution processing time is usually seven days. So, what is the process of claiming a tax deduction?

Jump on your super provider’s website and search for what is called a ‘notice of intent to claim or vary a tax deduction form’. You could also get this form.

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But you then need to complete and send this form to your super fund (email is probably the only way now to get approval before the end of the tax year). You can only claim a deduction once you have received a positive response from your super fund.

The good news is that if you want to pay in extra and use this strategy this year to cut your tax bill, you have longer to submit the form.

While your super fund needs to have processed your contribution before the end of the tax year to claim a deduction, you have until the earlier of the end of the next financial year or the date you submit your tax return.

There are, however, a couple of restrictions to the tax reduction opportunity. If you are aged 67 to 74, you’ll need to meet the work test or qualify for the work test exemption.

High-income earners also must be careful not to trigger a penalty called Division 293. This is an additional tax of 15 per cent on top of the usual 15 per cent super contribution tax.

It applies if your total income for the year is more than $250,000 … and this threshold includes all your before-tax super contributions, either those made by an employee or claimed by you as a tax deduction.

Bear in mind, though, that your marginal tax rate may still be higher than the total super tax of 30 per cent. Particularly if you have made a capital gain this year and face an additional tax bill, a (fast) last-minute super contribution could be a smart move indeed.

Nicole Pedersen-McKinnon is the author of How to Get Mortgage-Free Like Me, available at www.nicolessmartmoney.com. Follow Nicole on Facebook, Twitter or Instagram.

• Advice given in this article is general in nature and is not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their own personal circ*mstances before making any financial decisions.

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