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Contribute more to super, spend less on tax

Just contribute as much as you can, to save heaps on tax?!…

If you contribute more into super will you subsequently pay less tax? The short answer is yes, but let’s explore this a little bit…

Posted: 11/08/2021

For those in Australia who submitted tax returns with a salary of $80,000, they ended up being taxed at an average rate of 22.6%. Those earning above $180,000 ended up being taxed at an average of 30.5%.

Australian tax brackets:

This leads us to our next point which you must understand, that is, how is super taxed? There are three touchpoints to consider:


Pre-tax contributions:

You’re probably familiar with the idea of your employer making contributions to your super, but you can also opt to make extra contributions yourself. These contributions come out of your pre-tax income and are taxed 15% once they settle in your superfund.

Post-tax contributions:

these contributions come out of your after-tax salary but because they’ve already been taxed once, they are not taxed again when they are acquired by your super fund. It’s also worth noting that you can, at times, claim a tax deduction for these when you do your tax return. People who earn over 1.6m/year are unable to make post-tax contributions.

Investment Earnings:

The money in your super isn’t idle, it’s being invested and, thereby, usually making you extra money. The money that you make is considered ‘investment earnings’ and these are usually taxed at 15%.

The benefits

The great thing about super is that once you reach the age of 60, withdrawing money from your super is tax-free. Obviously if you withdraw before that age, you will pay some tax but we are assuming you will hold out!

Let’s look at the numbers here… essentially even if you’re earning the average salary in Australia you’re paying at least 32.5% in taxes and I’ve just told you that your super is taxed at 15% which is less than half of that. So, why wouldn’t you just contribute as much as you can and save heaps on tax?!

Well unfortunately, there is a cap on how much extra you can put into your super from voluntary contributions. Currently, you can what they call ‘salary sacrifice’ up to $25,000 per year. In saying that, it’s still worth doing if you can!

Let’s explore a case study on an employee who works here at Mintwell, let’s call her Gina.

Do you want to pay less tax? – Get in touch with the Mintwell team!

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