How to pay less tax and save for your retirement!

Blog - Why are accountants always on about super contributions?

Looking for ways to save tax?  Increase your super contributions and benefit your retirement.

At some time, most people will ask their accountant for advice on how they can save tax. Invariably, the accountant will ask them if they have considered increasing their super contributions.


This post seeks to explain why accountants see super contributions as a great way to save tax.

How do super contributions reduce tax?

The beauty of super contributions is that they produce tax deductions without diminishing your overall wealth. In making a super contribution, all you are doing is transferring some of your wealth into the super system where it will be invested for your benefit in retirement. In other words, the contribution remains your money.

How much is the tax benefit?

The tax benefit is calculated as the differential between your personal tax rate and the 15% contributions tax rate. Take the example of a person on a salary of $100,000 pa who elects to salary sacrifice an additional $5,000 into super. But for the salary sacrificed contribution, they would have taken the $5,000 as salary and paid tax on the 39% marginal tax rate. This means that they would have paid tax of $1,950 and have taken home $3,050. By comparison, $5,000 salary sacrificed will attract contributions tax of 15% - $750. This means that there is a net $4,250 increase in the superannuation account balance. In other words, the person is better off by $1,200. There is then the added benefit that the future returns on the funds invested will be taxed at a maximum rate of 15% within super which is typically much less than the tax rate applied to non-super investments.

What are the drawbacks?

There is really only one major drawback being the inability to access funds within super until a "condition of release" has been met. In most cases the earliest condition of release is met when a person reaches "preservation age", generally age 55, and can start a transition to retirement pension. This trade-off between tax savings and access to funds can be a significant dilemma particularly for younger people for whom retirement is a long way off.

Are the tax benefits always so attractive?

In short, no. A person's income levels and correlating marginal tax rate will have a significant bearing on the outcomes achieved.

For example a person with taxable income of less than $18,200 will be worse off because the 15% contributions tax is substantially higher than their personal tax rate - nil. The $18,200 to $37,000 bracket is not much better with only a small differential between the marginal tax rate and contributions tax rate. However, after $37,000, the benefits do start to stack up with the maximum advantage gained by people who are on the top marginal tax rate ($180,000 +).

Keep in mind that people with high incomes ($300,000 +), will pay an additional 15% on their contributions - known as a "Division 293 Assessment". This means that their tax saving will be capped to 19% (49% - 30%) as opposed to 34% (49% - 15%) for those earning between $180,000 and $300,000.

Please see the ATO website for details on the calculation of income for testing the $300,000 thresh-hold and other information on Division 293 Assessments.

Is there anything else to be mindful of?

Yes. When salary sacrificing contributions, care is required to ensure the concessional contributions cap is not exceeded to avoid excess contributions.

Care is also required to ensure that the contributions are made to a fund that has reasonable fees and good returns. A tax saving can easily be decimated by poor fund performance. 


The moral is that appropriate research should be undertaken and professional advice sought before embarking on a salary sacrifice strategy.

Ashley Carmichael Sky Accountants