Blog & Resources

How do super contributions reduce my tax?

Making concessional superannuation contributions is an effective way to minimise your tax as we approach the end of the 2021 financial year. 

Typically, the maximum someone can contribute to their superannuation fund before incurring excess contributions tax is $25,000 per annum (there are exceptions)

This can be demonstrated as follows: 

XYZ Pty Ltd has forecasted that it will have a taxable income / profit of $100,000. 

The director of the company agreed to pay superannuation contribution of $25,000 for themself. 

The tax effect of this is as follows:

Company effect @ 27.5% tax rate:

                                                                    No Super Cont.          Super Cont.

Taxable income                                               $100,000                      $75,000

Tax on taxable income                                      $27,500                      $20,625 

Superannuation effect @15% tax rate:

Taxable Income                                                                              $25,000

Tax on taxable income                                                                     $3,750 

Total tax on income                                      $27,500                       $24,375

Tax Savings                                                                                       $3,125 

The following should be noted:

- Superannuation contributions need to be paid into the superannuation fund by 30 June 2021.

- The earnings made on the funds contributed to the superannuation will continually be taxed at      15% as opposed to 27.5% inside the company.

If the effective tax rate was 47.5%, i.e., the top marginal rate plus medicare levy the savings would increase to $8,125.

If you would like to discuss further please contact us:
McNamara & Company - Chartered Accountants, located minutes from the Melbourne CBD
Phone +61 3 9428 1062

Please refer to disclaimer at the bottom of the page.