Tax deductible super contributions puts $1.6 million super dream in reach

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New rules allowing ordinary salary earners to claim a tax deduction for their personal superannuation contributions puts the fabled $1.6 million retirement superannuation balance within reach of more people, says Jonathan Philpot, wealth management partner at HLB Mann Judd Sydney.  

Jonathan Philpot

 Since 1 July 2017 ordinary salary earners can claim a tax deduction for their personal superannuation contributions, but it is an opportunity that may be overlooked in this first year of operation.

 “The rule change puts superannuation front and centre, and makes it an attractive savings option that should be considered alongside other tax advantaged wealth creation strategies.

 “The aim should be to build a big enough super balance that people need to take into account the ramifications of the $1.6 million cap on superannuation balances introduced last year, rather than believe it is something they will never have to worry about.

 “The key is to not rely on the minimum superannuation guarantee contribution but to seek ways to increase contributions. Now that a tax deduction is available for additional contributions, locking money away in superannuation until retirement has become more palatable for many investors.

 “It is achievable, even for mid-income Australians, if they have disciplined savings plan and take advantage of the various superannuation tax incentives available to them.

 “Starting as early as possible will make a large difference to retirement savings,” he says.

 Mr Philpot uses the example of a 40 year old with a superannuation balance of $100,000.

 If they commit to making the maximum concessional contribution of $25,000 a year, their superannuation balance would reach $1.3 million by age 65 (assuming an average real return of five percent a year [net of inflation]).

Starting balance at age 40

Balance at age 65








In contrast, a 50 year old with the same opening balance of $100,000 would be significantly worse off, reaching just $661,000 by age 65 with the maximum contributions.


Starting balance at age 50

Balance at age 65








“As this is the first year that ordinary salary earners can claim a tax deduction for super contributions, it provides a very good reason to start putting more into super.”

 For those who would prefer to focus on paying down the mortgage with extra funds, Mr Philpot has the following advice.

 “A good rule of thumb is for home-owners to revise their financial strategies as soon as they have their mortgage under control, and to down 50 percent or less of their home value, which is usually in their forties.

 “It could be very tax effective for some people to take money out of an offset account to make additional superannuation contributions.”

 For example, Mr Philpot said someone earning $100,000 a year, and therefore in the 39% tax bracket (including Medicare levy), could find this approach very tax effective.

 “If they were to personally contribute a further $10,000 from their offset account, into their super (on top of their super guarantee contributions from their employer), this would provide a net tax benefit of 24 percent.

 “Even by reducing the offset account to make the super contribution, the tax benefit far exceeds the additional interest cost on the home loan.

 “With the end of financial year just a few weeks’ away, now is a good time for people to look for ways of directing any additional funds towards superannuation before 30 June.

 “People in their forties must overcome any reluctance to lock away money until retirement age, as they will miss out on the tax benefits of maximising their superannuation contributions, which will quickly build their super balance, and therefore a better quality of life in retirement,” Mr Philpot said.