Tax time 2024: tip to supercharge your deductions this year

Mixing superannuation and tax rules can deliver bigger financial benefits than many people realise. Here’s how to play catch-up.

Big tax deductions are possible for people with a super plan. Picture: iStock

A hundred grand tax deduction is something that should impress anyone tired of paying tens of thousands of dollars each year to the Australian Taxation Office.

And it’s easier to get than many people may think, thanks to some interesting interplay allowed by our superannuation and tax laws.

Of course, there’s a big catch. Or two. Or three.

Number One is you need to have a spare $100,000 lying around to pump into your super, which is possible these days for anyone people significant assets such as property or shares.

Catch number two is you must have space left in your annual cap for tax-deductible super contributions. These are called concessional contributions and include compulsory employer super and your own salary sacrifice. The annual cap for the past three financial years was $27,500, and $25,000 for the four financial years before that.

The ATO says you carry forward unused cap amounts from up to five previous financial years, but then they disappear if you don’t pump them into your super. “For example, a 2019–20 unused cap amount that is not used by the end of 2024–25 will expire,” it says.

The third catch is that to qualify you must have a total super balance below $500,000 just before the start of the financial year in which you plan to contribute. If your balance was $499,000 before June 30 last year, you’re in luck.

Clever use of superannuation rules can deliver huge tax deductions. Picture: iStock

Age is also an issue but increasingly less so as the rules have relaxed in recent years to allow older Aussies to contribute to super. Today people under age 75 can contribute their own money into their super and claim the deductions, although there is a work test and a few complex exemptions involved for those aged over 67. If unsure, seek advice.

Catch-up contributions can be great strategy for people to offset capital gains from an asset sale. They can potentially stop a large capital gain being added to a person’s annual taxable income and pushing them into the top tax bracket of 49c-in-the-dollar including Medicare Levy.

As an example, let’s say a retiree couple aged under 75 sells an investment property and pockets a $400,000 profit – achievable in today’s era of sky-high real estate prices.

If they haven’t had concessional contributions going into super for the previous five years, each are eligible for $132,500 of carry-forward contributions and the related tax deduction. Add this to the 50 per cent capital gains tax discount allowed for assets held over a year, and they can potentially wipe out their entire CGT bill.

That’s an extreme example, but even workers with a spare $10,000 or $15,000 left in previous year’s caps could use the catch-up rules for some fancy tax planning.

However, there is a cost. Concessional contributions are taxed at 15 per cent as they go into super, so people on low incomes will have to do some number crunching and seek advice if unsure.

Once the money’s in super, though, the tax benefits continue.

Super fund members only pay a maximum of 15 per cent on money they make in super, and when they stop work and switch their fund from the accumulation phase to their own account-based pension, the tax rate is zero.

The catch-up rules are confusing and underused, but the financial benefits can be huge.

Anyone wanting to take advantage of it this financial year must act fast. Really fast. Some large super funds are past their cut-off dates for guaranteeing that member contributions will be received by June 30, and others have cut-off dates in the coming days.

Originally published as Tax time 2024: tip to supercharge your deductions this year