Most Australians will pay less tax from 1 July 2024 due to Stage 3 tax cuts. We all know this implies more money in our pockets, but consider how the tax cuts affect your super contributions strategy and how it impacts you.

What to think about if you’re a low-income earner

The maximum tax on your last dollar of income drops to 16% in 2024–25 from 19% in 2023–24 if you earn $22,275 to $45,000. The Medicare Levy of up to 2% is added to these rates (it phases in when income reaches a family-determined level).

Salary sacrifice and personal tax-deductible super contributions save tax compared to your income tax rate including Medicare Levy and the 15% tax on concessional super contributions. The maximum savings for incomes between $22,275 and $45,000 is 6% in 2023–24 and 3% in 2024–25.

The tax cuts in the new year may not be enough to tempt you to lock money away in super until retirement. The low-income tax offset (LITO), low-income super tax offset (LISTO), and Medicare Levy calculation can encourage concessional super contributions, so do your math. It’s more complicated than 16% (or 18% with Medicare Levy) vs. 15%.

The tax-free threshold and low-income tax offset eliminate income tax for anyone earning $22,575 or less in 2024–25. and means you don’t save tax by making concessional super contributions.

If your 2024–25 total income is below $60,400 and you work or manage a business for at least 10%, after-tax (non-concessional) super contributions may be worth considering. In this case, after-tax contributions may qualify you for a government co-payment.

Case studies

Jane and the LISTO

Jane self-employed and earns $25,900. After taxes, she contributes $1,000 after tax to her superannuation fund and will receive the $500 government co-contribution.

Jane wants to add $3,000 to her super and claim a tax deduction, but her friends say it’s not worth it because of the small difference between her 16% income tax rate and the 15% contribution tax.

Jane can get 15% of her concessional contributions from LISTO up to $500 because she earns less than $37,000. The offset will repay $3,000 x 15% = $450 to her super account after the financial year if she contributes $3,000.

LISTO lets Lan make her anticipated deductible super contribution, lower her income tax by $480 (16% x $3,000), and get her super contributions tax reimbursed.

Sharon and the LITO

Sharon makes $40,000 part-time.

To maximise her co-contribution, she may sacrifice $1,500 in 2024–25 in addition to her $1,000 after-tax contribution.

Sharon believes she will save $45 ($1,500 x 3%) due to the 3% difference between her income tax rate (18% including Medicare Levy) and the super contribution tax of 15%. She doubts salary sacrifice is worthwhile.

Sharon calculates that salary sacrificing $1,500 will boost her Low-Income Tax Offset (LITO) by $75. She’ll save $120 ($75 LITO boost, $45 income tax reduction). Sharon is undecided if she will proceed but is glad the saving is larger than expected.

Using your tax cut to boost your super contributions and save further tax

The tax decrease may be a simple method to boost your super contributions if you’re happy with your income. Why not divert the savings windfall to super instead of taking it home?

The concessional contribution cap increased from $27,500 to $30,000 per year, allowing you to contribute more to super.

Example: $90,000 income

Michael earns $90,000 per year and is not contributing to super. His take home pay in 2023–24 is $68,483 and he is comfortable with this amount.

To maintain the same take home pay in 2024–25 with the tax cuts, Michael can salary sacrifice $2,836 for the year. If he chose to take this amount as cash, 32% tax (including Medicare Levy) would be deducted. By directing it to super instead, Michael will pay the 15% super contribution tax – saving 17% (or $482.12) in tax. The lower super tax rate leaves more money to be invested for retirement.

Michael is in a position now that he can start contributing to super without noticing any difference in his pay.

Deductible contributions – is now better than later?

If you’ve been intending to put lazy money into super, consider doing it before 30 June 2025. A tax-deductible contribution in 2024–25 may lower your tax burden while boosting your superannuation balance in retirement.

Example: $130,000 income

Daniel has $10,000 saved to contribute to super and claim as a deduction. His income is expected to be $130,000 in 2024–25, with no tax-deductible spending.

In 2024–25, Daniel’s last $10,000 will be taxed 30% (32% plus Medicare Levy). When he contributes after July 1, 2024, he will pay 15% super contribution tax instead of 32%, saving 17% or $1,700.

Where to now?

If it’s seems like all too much, ask your super fund, accountant, or financial planner for help. Many super funds offer free contribution guidance or contact our office to discuss what is best for your needs. Please reach out to our office on 02 9188 1547 and you will get through to our Oran Park or Norwest/ Baulkham Hills location, alternatively you can fill out the contact form and an Adviser from our office will contact you.

If you like this article, you may also be interested in reading:

The information in this website and the links has been prepared for general information purposes only by our office and does not take into account your personal objectives, financial situation or needs. It is not intended to provide commercial, financial, investment, accounting, tax, personal or legal advice. You should, before you make any decision regarding any information, strategies, or products mentioned on this website, consult a professional financial advisor to consider whether it is suitable and appropriate for you and your personal needs and circumstances.