Boosting your super tax effectively

As we progress through life, the amount we pay into superannuation tends to take on a greater importance. Currently, our employers pay the standard 11.5% (for the 2024-25 year) contribution into our super fund but (rightly or wrongly), few people proactively consider their superannuation or the retirement which it will have to fund.

As we get older, our incomes typically increase, giving rise to more disposable income, particularly as the kids fly the nest. Retirement itself – once a destination which was barely on the map – now appears alarmingly close and for many, that leads to a greater focus on boosting our superannuation.

There are many ways to contribute to super, some more tax effective than others. Here's our guide to building up your super and getting the best tax outcome in the process.

Super concessional contribution caps

There is a limit on how much you can put into super each year from your pre-tax income. Such contributions are called concessional contributions.

From 1 July 2024, you can contribute up to $30,000 into your super fund. This includes your employer's super guarantee contribution, any salary sacrificed amounts and tax deductible personal contributions (see below for more details on salary sacrificing super and making tax deductible contributions). This is called the concessional contributions cap.  

From 1 July 2018, you can carry forward the unused part of your annual concessional contributions cap for up to five years (using up the earliest year first) provided your superannuation balance is less than $500,000. This means that the 2019/20 financial year (ie, the year beginning 1 July 2019) is the first year that unused concessional contribution amounts can be used.

Prior to 1 July 2022, if you were aged between 67 and 74, you could only make concessional contributions if you passed the "work test". That means that you had to work 40 hours or more in a consecutive 30 day period in the financial year in order to make contributions. From 1 July 2022, you do not need to pass the work test unless you are claiming a tax deduction for your personal superannuation contributions. The trustee of the superannuation fund will no longer have to apply the work test when they accept superannuation contributions from their members. For individuals between 67 and 74 wishing to claim a tax deduction for their super contributions, the ATO will administer the work test when the tax return is lodged.

TIP: The work test is quite easy to pass. If you work 40 hours during a consecutive 30 day period, you could – if you wanted – not work at all during the rest of the year.

After-tax contributions

After-tax contributions are known as 'non-concessional contributions' because you don't receive a tax deduction. Such contributions are the easiest way to top up your super as you simply deposit your own money into your super account.

If you have some spare cash, this is a great way to give your retirement savings a boost because the money is then in a low-tax environment, meaning you'll generally get a better return than if you'd invested in the same assets outside super.

Contributions from your after-tax income don't get taxed when your fund receives them because you have already paid tax on the income from which the contribution was paid

From 1 July 2024, you can pay up to $120,000 in non-concessional contributions each year. However, if your superannuation balance is more than the transfer balance cap you cannot make non-concessional contributions.

There is also a three year "bring-forward" rule for taxpayers who are under 75 years of age which allows you to make a contribution of up to $360,000 for the current (2024-25) and next two income years.

Salary sacrificing

A great way to boost your super is to salary sacrifice some additional contributions into your fund. This basically involves arranging with your employer for some of your pre-tax wages or salary to be paid into your super fund rather than to you. You will save tax and boost your super.

By 'sacrificing' some of your before-tax salary and putting it into your super fund, you get taxed at 15% on the additional contributions. If you normally pay income tax at a higher marginal rate than this, you will save tax. The higher your marginal tax rate, the greater the saving.

Tip: If you're looking to salary sacrifice, always enter into a formal agreement with your employer which includes the details in your terms of employment. This ensures your employer calculates their 11.5% super guarantee contribution on your original salary.

Making tax-deductible top-up super contributions

From 1 July 2024, you can make additional concessional contributions up to your concessional contributions cap (currently $30,000 plus any unused amounts from 2019 onwards) and claim an income tax deduction for doing it. For the 2022 to the 2024 income years, the concessional contributions cap was $27,500).

A 15% contributions tax is deducted from any superannuation contribution that has been claimed as a tax deduction.

If you are aged between 65 and 74 years of age, you'll still need to pass the work test (see above) to make a tax deductible contribution, however you no longer need to pass the work test to make salary sacrifice contributions.

Example[1]:

Todd is a fulltime dental assistant. During 2023-24 year, he earned $85,000 before tax. Todd has no other income. Todd made a personal contribution of $15,000 to an eligible superfund during the income year and notifies them that he intends to claim a deduction. Todd's superfund acknowledges that Todd will claim a $15,000 deduction and taxes the contribution at 15% ($2,250). Todd is eligible to claim a deduction for $15,000 and does this in his 2024 Income tax return. This deduction will increase his tax refund by $5,175, an overall tax saving of $2,925.

TIP: As well as making super contributions from your self-employed income or employment income, it is also possible to make super contributions from investment income (including dividends or rental income) and capital gains.