Concessional Super Contributions from after Tax Income, Does It Work The Way I Think?

seraphim2017 on 09/06/2022 - 15:55

I just wondered this, and I'm sure I probably need to seek proper financial advice, but just thought I'd Ozbargain it first!.

At end of tax year, I have money doing zip in savings account. I have something in the ATO website called a concessional cap which is huge as I've never earned enough or contributed anything.

Were I to put 10k in super before the end of the tax year, would I then be able to claim back the difference between the 15% that super is taxed at, and the 32.5c/37c the income was taxed at originally, come tax submission time? Is it that straightforward?

That would mean at 37c tax rate a tax rebate of $2200, the difference between the original 37% paid and the 15% super is taxed at, for a 10k concessional contribution to super?

Figured I might as well look at reducing how much tax I end up paying for my meagre earning to either government, save them being tempted to spend it on pork barreling!

Also, if it doesn't work this way, does anyone know how it does work, as I assume there must be some tax benefits to doing it, and to reducing taxable income below certain thresholds as well?

Financial Superannuation

Comments

  • mbck on 09/06/2022 - 15:58
    -4

    No. The part you contributed will be taxed at 15%, instead of whatever your marginal tax rate is. (Say 37%)

    That's it.

    • k-rokfm on 09/06/2022 - 16:08
      +2

      But he’s already paid the tax for the contribution

      You’re assuming he was paying out of his pre tax income through a pay check. Your answer is overly simple for this question?

      • Drakesy on 09/06/2022 - 16:14
        +6

        @mbck is correct though.
        You'll claim back the super contribution in your tax form (provided you've already paid tax on it).
        This will lower your gross pay by the amount you contributed.

        The super contribution then gets taxed by your super fund at 15% (but this is separate to your tax return).
        And you get a refund for the tax you would've otherwise paid on the money that was your concessional contribution..

  • moar bargains on 09/06/2022 - 16:11
    +4

    Nah, as mbck says, it doesn't work like that. Concessional contributions are only taxed at 15%, but that means that they go in pre-tax (often via salary sacrifice).

    However personal tax contributions seems to be what you're talking about (money sitting in bank account that you want to add to super) and may be eligible for a tax deduction. See here to check criteria: https://www.ato.gov.au/Individuals/Super/In-detail/Growing-y…

  • SBOB on 09/06/2022 - 16:22
    +7

    You can claim a deduction for personal contributions from post tax income into your super account, as long as you don't exceed $27500 for the year (including employee contributions or additional salary sacrifice contributions)
    You do need to have submitted a intent to claim to your super company also by their deadline so that they will deduct the 15% tax from your contribution prior to eofy.

    • jetblack on 10/06/2022 - 08:02
      +2

      This is the simplest to understand of the correct answers.

      I think the 'concessional' / 'non-concessional' terminology is just confusing. The basic situation is 'I have money in my bank account that has already been taxed and want to put that in super'. Yes, that money will be taxed IN your super at 15% and your effective taxable income at tax time reduces by the amount you contributed.

      So yes, 10k will have $1,500 removed by your super fund, and you'll get and extra $3,250 back in your tax returns.

    • Kramo on 10/06/2022 - 12:21

      The $27,500 is for concessional (before tax e.g. employer contributions and salary sacrifice).

      The non-concessional (already taxed money in your bank account that you transfer over) seems to be at $110,000

    • demeter on 10/06/2022 - 21:27

      You also need to actually add it as a deduction in your tax return.

      In addition to this, any portion of that $27500 cap that was not used is rolled over into the next financial year up to 5 years: https://www.ato.gov.au/individuals/super/in-detail/growing-y…

      You can view your current cap in myGov if you have the ATO connected to it.

  • MITM on 09/06/2022 - 16:27
    +6

    And…..
    Before you can claim a deduction for your personal super contributions, you must give your super fund a Notice of intent to claim or vary a deduction for personal contributions form (NAT 71121) and receive an acknowledgement from your fund. There are other eligibility criteria that you must meet.

  • Porker on 09/06/2022 - 16:28
    +1

    OP, speak to your super fund. Mine was very helpful in understanding this and what forms I need to complete in order to ensure the income tax already paid is accounted for.

    Mine was as simple as a phone call and they emailed me all the details required to both deposit the contribution funds and complete the relevant paper work for submission during tax time. That is, to account for the difference between the income and super tax percentages.

  • MITM on 09/06/2022 - 16:29

    Also, depending on you annual income, you may be entitled to a 50% match (up to $500) - use to be $1 for $1.

    • avoidfullprice on 09/06/2022 - 17:45

      Source? I think you are mixing up with non concessional co contribution

      • donga100 on 09/06/2022 - 18:37
        +1

        You need to earn under $46k per year to qualify for the full $500. If you earn over $57k you will get nothing.

        • avoidfullprice on 09/06/2022 - 19:17
          +1

          That link is for non concessional contribution.

          What’s OP asking is concessional contribution

          • donga100 on 09/06/2022 - 19:32

            @avoidfullprice: Yes, but if you are eligible for the co contribution it is better to claim it rather than the tax credit.

            • demeter on 10/06/2022 - 21:29

              @donga100: No, the co-contribution is only calculated when you make non-concessional contributions (after tax contributions).

              If you claim a deduction on the contribution, it's a concessional contribution (taxed at 15%) and does not count towards receiving the co-contribution.

              • donga100 on 12/06/2022 - 15:29

                @demeter: Yes, but if you are eligible for the co contribution it is better to claim it rather than the tax concession.

  • deeeno on 09/06/2022 - 16:30
    +3

    SBOB has it right, there are also rules that you can use unused contributions from prior years.

    i.e. if you didn't contribute last year, then this year you can add another $25k to your contributions (2020 super contributions cap and also assuming you have spare cash lying around) - claim this as a tax deduction too. The ATO portal, via myGov, actually handily has a section which tracks roll forward unused contributions.

    Just beware of two things you need to do:
    1. Lodge notice of intent to claim tax deduction with your superannuation fund before 30 June 22 and your superfund needs to acknowledge receipt of this notice, then
    2. Actually deposit the cash with your superfund on or before 30 June 2022

    If you pay via bpay on 30 June 2022 and the cash isn't physically transferred until 1 July 2022, then you'll be claiming your tax deduction in FY23 instead…

    You might be able to call up your superfund and get some advice on this too, worthwhile giving it a go.

    • dtc on 09/06/2022 - 18:09
      +2

      minor correction - the notice of intent has to be lodged before you lodge your tax return (rather than end of financial year).

      • deeeno on 14/06/2022 - 09:31

        Sorry yes you are 100% correct.

        Notice of intent must be lodged by the earlier of either:
        1. When you lodge your tax return to claim the deduction
        2. By the end of the next financial year (i.e
        30 June 2023 for FY22 contributions)

    • JohnSy on 09/06/2022 - 18:42
      +1

      As mentioned, unused concessional contributions from 2019-2020 onwards can generally be carried forward for a 5 year period. There are some conditions to meet to be able to do it. If you login to your My.Gov.Au account it will show your recent "Carry-forward concessional contribution balance" in the "Super", "Information" section.

  • Donaldhump on 09/06/2022 - 16:30
    +5

    FYI : if you put 10k in your super before june 30, make sure it actually lands in there before june 30, i.e send it June 25th or so via bpay.

    if you put 10k from savings into your super this will be Non Concessional by default and nothing will happen tax wise until you fill out a notice of intent form / do your tax.
    The super fund won't tax it and you won't save anything.

    When you are ready to do your tax, you will out this notice of intent form, sign and submit to your fund and wait for confirmation from your fund they recieved it. They then tax it at 15%, so it becomes $8500. You can then claim on your tax return by reducing your income by 10k and this will result in you getting a $3200 / $3700 credit depending on your tax break.

    So your net profit is 17% / 22%, i.e. you save $1700 / $2200 by doing this, but lose access to this asset till 60.

    FYI : having too much in super can actually result in less income later on due to the ATOs stupid taper rate. having more than 650k as a couple can actually be detrimental.

    • Drakesy on 09/06/2022 - 16:39
      +5

      but lose access to this asset till 60.

      Or you can withdraw it as your first home owner saver scheme when you buy a house;)

  • netjock on 09/06/2022 - 16:52

    Just ask work to do a lump sum salary sacrifice. Better for cash flow purposes.

    • donga100 on 09/06/2022 - 18:46

      Not everyone will be getting paid $10k before the end of this month.

      • netjock on 09/06/2022 - 22:06
        -2

        Forget to plan in starting July 2021 and leaving it until the last month. Talking about backing yourself into a corner.

  • Muzeeb on 09/06/2022 - 17:45
    +1

    @mamalove will have the definitive answer

  • cashless on 09/06/2022 - 17:58
    -3

    Concessional = pre-tax contribution to super, you only get stung 15% when it goes into your Super fund
    Non-concessional = post tax contribution (i.e. from your savings account). You have already paid income tax on it and you will also get stung the 15% contributions tax when it goes into your super

    Annual max for Concessional contributions = $27,500
    Annual max for non-concessional = much higher, but varies - check ATO website for details

    • avoidfullprice on 09/06/2022 - 18:01
      +1

      you will also get stung the 15% contributions tax when it goes into your super

      Not on the non concessional contribution. You get taxed on your earning only

      • cashless on 11/06/2022 - 10:38

        Yup, got that bit about double tax wrong. Apologies OP

  • mamalove on 09/06/2022 - 18:17
    +3

    When you put in 10k into your super, then fill in the notice of intent to claim as tax deduction, superfund will deduct $1500, so your $10k becomes $8500.

    Then in your tax return, you put in $10k as deduction. Assuming you're on 34.5% margin tax rate, you'll get $3450 from ATO.

    In effect, you save $3450-$1500=$1950.

  • avoidfullprice on 09/06/2022 - 19:20

    Dont forget the 2% off Medicare levy you get back by claim it as concessional contribution.

    Unfortunately, it wont help with avoiding Medicare surcharge levy if your reportable income is above the threshold

  • seraphim2017 on 09/06/2022 - 19:20

    Thanks all. I see now I used the wrong terminology. I meant personal contribution (from a savings account from income already taxed), not concessional.

    So I give super my notice of intent, pay the 10k from savings before 25th June, then it gets taxed by them, and I declare 10k when doing tax return to get the income tax already paid on the 10k as a rebate. So receive back the $3700 (37% tax rate).

    And as long as I don't go over my allowance (checked, no chance!) Or have more than 650k super (sadly no chance either at the moment, not been paying super for long)

    And can't access it until 60.

    • avoidfullprice on 09/06/2022 - 19:23
      +1

      When you claim tax back from your after pay contribution, it turns into concessional

    • xylarr on 10/06/2022 - 08:55

      Put in money before 30 June - they must receive it by then, so go a bit early - let's say it's $10k
      After 30 June, assuming you didn't bust your cap, tell your fund that you will be claiming $10k
      Wait for them to reply with a letter of acknowlegement.
      Enter this detail on your tax return - this reduces your taxable income for the year by $10k
      Some time later you will see the fund will take $1500 to pay tax on the contribution.
      You will get a refund on the marginal tax paid on the $10000.

      It can also get a little tricky. For example, my work generally has about 8-10 days between when I get my pay and when my super fund gets the super guarantee contribution. For the last salary payment of the year, my work assumed that the contribution related to that actually made it to my find - so that is the amount they had on the payment summary. But in fact that amount didn't reach the fund until a few days into the new financial year. Each year I try to so exactly what you are planning to do, and contribute an amount that will exactly hit the cap. I was slightly startled when I saw that they documentation from my work said they had contributed more - and therefore I would be busting my cap. But no worries, it's about what the fund received and the timing of that, not what your work sent.
      Even if you did do a personal cont that made you go over your cap, you just claim the amount that would reach your cap. The amount that is over your cap becomes a non-concessional contribution and does not get taxed at 15% in the fund - but you can argue that it is more tax efficient to exactly hit your cap.

    • BigBirdy on 10/06/2022 - 09:03

      You must make the super contribution earlier enough that your fund will have received it before 30th June.
      To claim some or all of it as concessional, you must submit a Notice of Intent form to your super fund, and have received an acknowledgement, before doing your tax return (ie there's no rush on this).
      The concessional contributions get subtracted from your taxable income, hence reducing your tax & medicare obligations.
      The advice about max $650K relates to getting the Aged Pension. It may have relevance to some people's aims in life, but it's about as useful as advising someone to hide or spend assets so they get more welfare. Unless you understand the implications and how it affects you, I would be wary of such advice.

  • Cheapskate Paul on 09/06/2022 - 20:08

    Just make sure that you don't reduce your taxable income below $45,000.

    • seraphim2017 on 09/06/2022 - 20:24

      Impossible for me, but what happens if you do?

      • Cheapskate Paul on 09/06/2022 - 20:40
        -1

        There is little to no tax benefit below $45,000, and you lock the money away until you're 60.

        • seraphim2017 on 09/06/2022 - 20:58

          I see. Does reducing taxable income below the $126,000 LMITO threshold this way allow someone to claim the "lamington"? Or is that not how it works?

    • TimOfEastBNE on 10/06/2022 - 06:00

      Could you expand on the "don't reduce your taxable income below $45k" point please?

      • nukewell on 10/06/2022 - 08:55

        Just means you are barely better off contributing as your effective tax rate at this level of income is so low already. You would be locking up the money until retirement age for little to no benefit

        • xylarr on 10/06/2022 - 08:57
          +1

          While the total tax on 45K might be less that 15%, the marginal tax on the top bit - which is relevant here - would be over 15%. But I agree, in general, it benefits people on the higher tax brackets more. Plus, they're likely to be the people who have a lazy 10K lying around that they won't mind locking away for retirement.
          The other useful thing is that by reducing your income, it means you can earn income from other sources that might not have been taxed (i.e. share dividends), and not have to pay tax on it. Well, you do pay tax, but it has already been paid to the ATO via PAYG with your salary. My point is that without this, each year I would get a tax bill mostly related to dividends.

      • Hearthstone on 10/06/2022 - 09:33
        -1

        after 45K is 13% why would you want to put extra money into super that tax at 15%?

        • seraphim2017 on 10/06/2022 - 09:44
          +1

          Isn't the tax rate at 45001 to 120000 around 32.5%? Not 13%?

          • Hearthstone on 10/06/2022 - 10:48
            -1

            @seraphim2017: no effective rate is around 13.3% there will be bracket where you paid more
            like $18,201 – $45,000 you paid 19% but over all your tax packet is only 13.3% due to tax free thread hold

            so it not really worth wise making extra contribution into super where it locked away until you are 60+
            money better spent on mortgages etc where you have more option and be able to access that extra cash.

            Extra contribution is an good move for high income earner as they will be paying
            35-45% on the amount they don't salary sacrificed into Super.

            I know it works well because when I was in my 20s I am on a good wicket and I Max out my super contribution
            every single year and now I got very large super balance in my 40s
            I also managed my own Super so it helps as I know exactly how much I got .

            • BigBirdy on 10/06/2022 - 12:27
              +2

              @Hearthstone: If your taxable income is over approx $22K (due to tax brackets, Medicare and tax offsets), you can save yourself dollars by making a concessional contribution. An end of year lump sum is particularly attractive as you can allocate the concession and non-concessional components after EOFY, when you have visibility of previous contributions, income, expenses, etc for the FY. Averaging out your tax rate has no relevance. Whether this is a time in your life to put more into super, versus mortgage, kids education or whatever, is purely a matter of personal circumstances, particularly noting that not all Ozbargainers are in their 20s!

  • Hearthstone on 10/06/2022 - 09:28

    @seraphim2017 After this year and if you are
    High income earner got cash to spare, you can salary sacrificed into super max out your 25K limit

    better do this with your monthly pay packet, work out 12 payments
    how much of that in compulsory and what you add on top so it wont breach 25K limit
    important you don't breach this 25K else you get tax at maximum rate

    you can chuck more in with non-concession contribution with your after tax money but probably not a good idea if you got large mortgage better off knocked off the mortgage
    Paid excess cash into your mortgage (tax free return on 3% interest and maybe more with the way the rate are going) plus capital appreciation in your PPOR is tax free

    • seraphim2017 on 10/06/2022 - 09:45

      Thanks @hearthstone and others. I'm definitely not in the super high tax bracket or anything like a high earner, I wish! Just wondering how I can use any tax breaks available to make my income the most efficient it can be!

    • Donaldhump on 10/06/2022 - 11:02

      Plan works well until you get made redundant in august and can’t find work till July the next year

      Limit is also 27.5k and includes the sg by your employer

      • seraphim2017 on 11/06/2022 - 09:50

        Always that risk. I've missed so many opportunities that way. Still "young" enough (haha!) to have 25 plus working years to iron out financial things like poorly performing shares etc.

        Also, multiple jobs and considering some freelance so hopefully they don't all go belly up in the next year!

        • Donaldhump on 11/06/2022 - 15:39

          Don’t sacrifice into super until you are into the 32.5% tax bracket, otherwise you may pay more in tax.

          Just do double the amount after 6 months that’s my method

          But having too much super is detrimental as well you actually lose out more

  • ramshead on 10/06/2022 - 11:01

    Last year I did what you’re considering. Super fund said they were not accepting those contributions after 25/6. I just made it with bpay. Notice of intent form took a bit over 2 weeks processing

  • nihhop on 10/06/2022 - 15:43

    If you have just started working and earning a low income of 28k first year and 36k the 2nd, are you still able to make a concessional contribution of 28k [(28k-18k)+(36k-18k)] on the 2nd year at one go and still be able to get a return of 28k*19% = 5320 refund? (18k being the tax free threshold). I am still contemplating whether I should use my savings for this. Does it make sense to contribute more at this point?

    • seraphim2017 on 10/06/2022 - 17:08

      I think you only get a refund if you've paid the tax? Otherwise its not a refund!

      So if you've not paid much tax on 28k in year 1 and 36k in year 2 (trainee?) Then you won't have a lot of tax to claim back as those brackets would be barely into 19% tax, and super is taxed at 15% so your saving is hardly worth it tax wise it seems? Although saving while you are young is good because of compounding interest over the long term.

      SUPER is taxed at 15%, so the higher your tax bracket, the greater the difference between tax rates and the more it is worth it to reduce tax paid. Plus, you'll actually have paid tax. Tax on 28k must only be a couple of grand max, as you pay nothing on the first 19k?

      • nascar77 on 10/06/2022 - 23:54

        u might be able to get govt super co contribution

        If you earn less than $56,112 (the upper limit for the 2021/22 financial year) and make an after-tax contribution to your Super account, then the Government may also make a contribution.The amount you’ll receive depends on how much you earn and how much you contribute. If you earn less than $41,112 (the lower limit for the 2021/22 financial year), then for every dollar you pay in the Government will add 50 cents, up to a maximum of $500. this contribution can not be claimed as tax deductable

        also check LISTO rules if your income is below 37000. u might be able to get another 500$ by making a small additonal deductbale personal contribution.

        The low income super tax offset (LISTO) is a government superannuation payment of up to $500 to help low-income earners save for retirement.
        If you earn $37,000 or less a year, you may be eligible to receive a LISTO payment. This is usually paid directly into your super fund.

        check ATO site for details. super fund sites also have details on these.

        Good info to have if your kids just started working or you have some one working casually / partime

        • nihhop on 14/06/2022 - 17:01

          Thanks nascar77…i have put in 1k into super co contribution and hopefully LISTO as well. Just wondering whether it is worthwhile to put more into concessional contribution to reduce the tax further.

          • nascar77 on 14/06/2022 - 17:44

            @nihhop: Making additonal contribution till your income drops to 18201 might save you some money but the amount is too small, basically u save 4% in tax. Income from 18201 to 45000 will be taxed 19% vs the contribution you make will reduce your income but will be taxed 15%. For every 1000$ you contribute u save 40$ in tax also look at https://moneysmart.gov.au/grow-your-super/super-contribution…

            Here is what can be done in case income is below 37k , use your own judgement and research

            1. For govt co contribution make a 1000$ personal contribution and do not claim it as an expense in your tax return. That will get you 500 from govt as super co contribution assuming ur income is below 41112 and u fulfill the other conditions.

            2. For LISTO make sure that your super concessional contributions(paid by your employer) are above 3334 in total( excluding the $1000 personal contribution which you will not claim as expense form your income) if it is lower make personal contribution to make it 3334 and u can claim any additonal contribution as a deduction from ur income. if your salary is above 33,334 ur employer contributions will already be 3334 so u dont have to contribute more to get max amount from LISTO. LISTO is 15% of your concessional contributions upto a max of 500$. 3334 x15%= 500

            You are eligible for the LISTO if you satisfy all of the following requirements:

            You or your employer pay concessional (before tax) contributions for the year to a complying super fund – this includes super guarantee amounts
            you earn $37,000 or less a year – to work out your eligibility, we use your actual or estimated 'adjusted taxable income' (see Income tests)
            you have not held a temporary resident visa at any time during the income year (note that New Zealand citizens in Australia are eligible for the payment)
            you lodge a tax return and 10% or more of your total income comes from business and/or employment, or you don't lodge a tax return and 10% or more of your total income comes from your employment.

      • nihhop on 14/06/2022 - 16:52

        thanks for replying…yes paid tax for both years at 19% so around 28k-18k=> 10k19% => 1.9k for first year and 36k-18k=>18k19%=>$3.42k for 2nd year. Total tax paid would be 5.32k.

        I just thought that if I were to pay 28k into super maybe I could save (28K*15%=>4.2K), 5.32k-4.2k = 1.12k (tax refund)?

        Hope my calculation is correct.

        • seraphim2017 on 14/06/2022 - 16:59

          Someone with more knowledge (Or a proper financial advisor), but I don't think the personal/individual tax you paid in the previous year will be eligble to be rebated, so you would 'cap' out at whatever this years tax burden is, I'm not sure you can carry it forward that way. You'd possibly benefit from freebie tax advice like the usual free 1 hour consult your super fund can often arrange to explan the basics to you etc.

          I could well be wrong (it happens a lot!) in which case you'd have to work out if locking the money away for decades is worth the tax break now.

          • nihhop on 15/06/2022 - 16:10
            +1

            @seraphim2017: appreciate it seraphim2017……off to an appointment with a financial advisor/accountant now!

    • fredblogs on 10/06/2022 - 18:22
      -1

      I don't reckon you should do this as a low income earner. You never know when you'll need those funds

      • nihhop on 15/06/2022 - 16:10

        thank you fredblogs!!

  • seraphim2017 on 14/06/2022 - 15:54

    Thanks all for the help, just been on to ATO and it looks like my taxable income is already reduced by salary sacrifice (going by previous years calculations) so I'm under the threshold for some things.

    I'll still put a smaller amount into super as its still a tax saving, and will make the assumption that the terrible current markets will recover over the next 25+ years, meaning I get more 'unit's' per $ invested in super and they'll come back (or else the world ends and it is a moot point anyway!).

    I'm a way off anything like exceeding the caps and highest tax brackets but every bit of income saved from tax is income invested!

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