Saving tax through superannuation: What you need to know

One in two Australians may be missing out on thousands of dollars in tax savings, new research shows.

Cubes with tax written on them on top of Australian dollar notes.

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New research shows 54% of Australians have little or no understanding of the tax concessions available within superannuation. This means they may be missing out on thousands of dollars in tax savings.

Women and Gen Zs are particularly affected, according to financial advisory firm Findex.

Its data reveals that 65% of women and 65% of Gen Zs have little to no understanding of tax concessions.

The research also shows that 28% of Australians have never added extra money to their superannuation.

The first thing to learn is that personal superannuation contributions (up to a cap) are taxed at just 15%.

This is far lower than the marginal tax rate that most Australian workers pay. This means that you can save significant money by clicking a few buttons online. Let's find out more.

You'll save on tax by adding money to superannuation

Daniel Slabicki, a senior manager at Findex, explains that individuals can make personal concessional (pre-tax) superannuation contributions up to a cap of $27,500 for the 2024 financial year (FY24).

These contributions include the compulsory Superannuation Guarantee payments made by your employer, any salary sacrifice amounts you have arranged, and any extra money you choose to add.

Say you contribute $8,000 of extra funds into superannuation. That money is then taxed at 15% within the fund. This leaves $6,800 to be invested by the fund according to your selected strategy.

When you fill in your tax return, you then claim a tax deduction for the $8,000.

Alex Duonis, a tax advisory partner at Findex, explains the impact:

A high earning taxpayer may obtain a tax deduction at a rate of up to 47.5% in respect of such super contributions but may only pay contributions tax at the fund level of 15%, thus generating a potential immediate tax arbitrage benefit of 32.5%.

It's important to remember that after depositing your funds, you must fill in a Notice of Intent to Claim or Vary a Deduction for Personal Super Contributions form and send it to your superannuation fund.

The deadline to do this is the earlier of the date you lodge your income tax return and the last day of the income year after the income year in which you made the contributions (typically the following 30 June).

A few things to be aware of…

Slabicki says workers on high incomes should be mindful of the Division 293 tax.

He explains:

An additional 15% tax on concessional superannuation contributions applies to individuals who earn more than $250,000 per annum. High income earners should consider this when contemplating whether to make additional personal superannuation contributions this year.

Slabicki also points out that unused concessional caps from the past five years may be carried forward. This means you may be able to make additional concessional contributions above the $27,500 cap for FY24.

However, the total value of your superannuation must have been less than $500,000 on 30 June of the previous year to use the carry-forward benefit.

Matthew Swieconek, Findex Head of Investment Relations, says superannuation tax concessions allow workers to save more for their retirement in less time.

If you want to give your superannuation a boost, here are more ways to get money into your fund.

Motley Fool contributor Bronwyn Allen has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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