Understanding how to manage super contributions effectively is crucial for barristers aiming to optimise their tax situation. This guide will help you understand how you can use tax-deductible superannuation contributions to make the most of the concessional contributions cap and avoid unnecessary tax liabilities. By informing your superannuation fund and meeting the Australian Taxation Office's eligibility requirements, you can claim a tax deduction on your personal contributions, which will help to reduce your taxable income, all while building your retirement savings.

It's important to consider the various factors that can impact your super contributions, such as the potential to exceed the concessional contributions cap, which can lead to paying additional taxes or how your income level may trigger an assessment for Division 293. These factors directly impact your income tax and overall tax obligations. Additionally, decisions like whether to split contributions with your spouse can also affect your tax situation.

If you need personalised advice on how to maximise your super contributions while minimising your tax liabilities, schedule a complimentary consultation with us at Caubrooks by using the link here.

‍

‍

Tax deductible superannuation contributions

In order to claim a tax deduction you need to first make a personal contribution into your superannuation fund. You then need to confirm with the fund how much you intend to treat as a concessional contribution. Note, you need to receive written confirmation before you can lodge your tax return.

The amount you claim as a deduction will be included in your concessional contributions cap, which limits the contributions taxed at a concessional rate of 15%.

Before claiming a deduction, consider the following:

• you could exceed your concessional contributions cap, resulting in extra tax
• if your income and concessional contributions exceed $250,000, you may be liable for Division 293 tax
• decide whether to split your contributions with your spouse

Exceeding the concessional cap will require you to pay additional tax, and any excess concessional contributions left in super will count towards your non-concessional contributions cap. Note that tax deductions must be claimed in whole dollars, meaning any cents from your contribution will count towards your non-concessional cap.

Concessional contributions (before tax contributions)

Concessional contributions are amounts added to your super fund before tax is applied, and they're taxed at a concessional rate of 15%. These contributions, often called ‘pre-tax super contributions’ or ‘before-tax contributions,’ are made up of your voluntary contributions.

Because these contributions are made before tax, they form the bulk of the money entering your super fund. Be mindful of your personal concessional contributions cap, as exceeding it can result in additional tax obligations.

If you didn't maximise your concessional contributions in any of the previous five financial years, you are able to bring forward the difference in used contributions cap amounts, depending on your overall super balance. To learn more, read our article on the bring forward rule here.

Non-concessional super contributions (after-tax contributions)

Non-concessional contributions are voluntary payments you make to your superannuation account using your post-tax income. Since these contributions are made with money that has already been taxed, they aren't subject to further taxation within your superannuation fund.

These after-tax personal contributions are designed to help you increase your total superannuation balance without facing additional tax liabilities. However, it’s important to be mindful of the non-concessional contribution caps for each financial year. Exceeding these caps can result in additional tax obligations, which could impact your overall financial planning and retirement savings. Staying within the limits ensures you maximise your superannuation benefits without incurring unexpected tax costs.

Non-concessional contribution caps

Starting from 1 July 2021, the non-concessional contributions cap has been increased to $110,000 due to indexation in accordance with the Average Weekly Ordinary Time Earnings (AWOTE). Compared with the concessional contributions cap, the non-concessional contributions cap is a higher contributions cap, which means it adds a lot more to your retirement savings via super. Contributing more than this amount may result in additional tax obligations. For the period between 1 July 2017 and 30 June 2021, the non-concessional contributions cap was $100,000. However, your cap may vary depending on certain factors, such as if you're eligible for bring-forward arrangements, or if your total super balance exceeds the general transfer balance cap, which was $1.6 million from 2017-2021 and $1.9 million from 1 July 2023.

If you have multiple funds, the sum of all non-concessional contributions made in a financial year to each fund counts towards your cap.

We can inform you about the excess contributions and provide guidance on your options for dealing with the excess amount. This could include withdrawing the excess contributions or paying additional tax, which is known as the excess contributions tax.

It's important to note you must also lodge a tax return for that year if you exceed your cap.

Tax specialists for barristers

We have been helping barristers in Sydney for over two decades and have a wealth of experience working with everyone from Senior Counsel to readers starting out in their first year. If you need help setting up your sole trader business structure, or managing business profits and tax obligations, reach out to us today for a complimentary consultation.

‍

‍