SMSF and Superannuation

With 30 June fast approaching, now is the time to review your year-to-date taxable income and determine whether a contribution to superannuation is an effective way to reduce any tax payable. Superannuation contributions can present some generous tax benefits, whether you are a business or an individual. We help identify some of these below:

Types of super contributions

First, it is important to identify there are two types of contributions that can be made to a superfund:

1. Concessional contributions – these are either from super guarantee paid as part of a wage, or voluntary contributions made by an individual and later claimed as a tax deduction when completing a ‘notice of intent to claim a deduction’ form.
2. Non-concessional contributions – these are after tax contributions made to the superfund which have no tax implications.

Concessional contribution caps

There are limits to what can be claimed as a concessional contribution per year, with the exception of the ‘carry forward unused concessional cap amounts’ rule.

1. The concessional contributions cap for the 2024/25 FY is $30,000 and no change for 25/26. This is a combined cap for any employer super guarantee contributions and voluntary contributions claimed as a tax deduction.
2. The carry forward unused concessional contributions cap allows you to utilise any unused cap space for the previous five financial years provided your total superannuation balance is less than $500,000 at 30 June the previous financial year.

Super tax rate

Concessional contributions within super are taxed at 15% unless your income exceeds $250,000 (which will incur additional tax).

Business and individual super claims

If running your own business or as an individual in an employed position, there are two options with claiming a tax deduction for additional super contributions:

1. If receiving a wage, you can salary sacrifice amounts above the standard super guarantee rate. This is a tax deduction to the business and does not increase your taxable income to be reported in your tax return.
2. An individual can make a voluntary contribution to their superfund and when preparing their individual tax return, notify their superfund of the amount they wish to claim. This will then be a tax deduction and offset business/wage income reported in the individuals tax return.

Note: option 2 is a common method for people who are operating as sole traders or from a trust and receive no wage, only business distributions.

Example of tax savings

Example 1
A sole trader who has taxable income of $110,000 decides to contribute $10,000 to super and claim a tax deduction. Based on the individual’s marginal tax rate, $10,000 would be taxed at the 30% bracket saving $3,000 in tax payable. Your superfund will pay tax at 15% on this contribution of $1,500, leaving a net tax saving of $1,500.

Example 2
An individual who operates their own company and receives a wage of $120,000 wants to reduce the company’s taxable income which is showing a good profit for the 24/25 financial year. They want to pay out a further $10,000 to the employee to help reduce the company profit. Rather than pay an additional wage amount of $10,000 which will incur tax at 30% in the individual’s name, they can make a before tax salary sacrifice payment to super of $10,000. The individual will not pay $3,000 of personal income tax, the company will not pay $2,500 of company tax ($10,000 x 25% tax rate) and the superfund tax payable will be $1,500. This is a net saving of $1,000 or $1,500 depending on if tax would be paid by the company or by the individual without salary sacrificing.

Note: these examples do not factor in Medicare levy rates.

Need help? Please get in contact with us if you would like to discuss this further. 

The purpose of this article is purely to identify ways to minimise income tax payable and should not be taken as financial advice. Please see your financial advisor for further advice about your specific super circumstances.