Are super contributions tax deductible?

Key takeaways

  • There are a whole range of strategies that make it worthwhile putting a little extra effort (and money) into your super
  • Personal super contributions—those made from money you’ve already paid tax on such as savings or your take-home pay—are tax deductible
  • Your personal super contribution is taxed at 15% which is significantly lower than what most people pay on their taxable income.


Ever woken up on your birthday and found a horribly-wrapped present at the end of your bed? Plain paper, bulky sticky tape, badly written card? But then you open the present and it’s what you’ve been dreaming of for years?

The same could be said for super. It’s messy, complicated, tricky to get into. But worth it in the end.

Why? Because the three layers of tax benefits—when you contribute, while your money’s invested and when you take it out—could make it supremely effective at giving you a long, worry-free retirement.

Tax-deductible super contributions

One particular tax benefit is tax-deductible contributions to super.

Personal super contributions—those made from money you’ve already paid tax on such as savings or your take-home pay—are tax deductible. These contributions can be claimed against your assessable income when you lodge your tax return.

Bottom line? You get to save some tax whilst bringing you closer to your retirement goals.

The rules on personal tax-deductible super contributions

There are rules surrounding tax in super that you should be aware of.

  • Personal contributions are concessional contributions so, they’re capped at $25,000 per financial year1. If you choose to contribute over this amount, you may be required to pay more tax.
  • Your personal super contribution is taxed at 15%2 which is significantly lower than what most people pay on their taxable income (the highest marginal tax rate is 47% if you include the Medicare Levy).
  • Higher income earners (on more than $250,000) are taxed at 30%3 on contributions. That’s a decent extra tax hit—but still a lot less than the top marginal tax rate.
  • If you’re a lower income earner on a marginal tax rate of 15% or close to it, there may be little advantage in making a tax-deductible super contribution. Speaking to a financial adviser can help you decide the best approach.
  • If you’re 67 or over you need to meet a work test before you can make a personal super contribution. This means you must have been employed during the financial year for at least 40 hours over a period of no more than 30 consecutive days.

Claiming your tax deduction

To claim a tax deduction, you’ll need to provide your super fund with a ‘Notice of intent to claim or vary a deduction for personal super contributions’ form. This form is available through your super fund or the Australia Taxation Office.

Once your super fund receives your form, they’ll be able to confirm the amount you’re eligible to claim as a tax deduction.

Bottom line: Super is harder than it probably should be—but better than you probably think. The mix of a whole range of tax savings, structured long-term investing and regular contributions make it a powerful engine for delivering an anxiety-free retirement.

There are a whole range of strategies—like personal tax-deductible super contributions—that make it worthwhile putting a little extra effort (and money) into your super. Talking to a financial adviser can make it a lot easier.

If you have questions and would like your financial situation to be evaluated, please email us on with your contacts, for an exploratory meeting, at our cost, not yours.

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Inflation: Friend or foe?

It might be unwise to extrapolate too much from this week’s inflation data on both sides of the Atlantic. This is peak bounce back. Like the surge in corporate earnings that we will see in the results season that started this week, the rise in inflation is largely a matter of arithmetic. The world shut down a year ago and is re-opening today. This was always going to distort the figures.

Take the biggest contributor to this week’s rise in UK inflation, transport costs. The recovery in the oil price has been dramatic, and petrol at 130p a litre versus 106p a year ago reflects that. But this is a return to a more normal world from one in which producers were, briefly, paying others to take oil off their hands and the cost of a barrel of crude was, for a short time, negative. Likewise, the increase in second-hand car prices is largely about a temporary semiconductor shortage affecting the production of new cars. This too shall pass.

So, while the inflation prints in both America and here have been significantly higher than forecast this week, we should not assume that central banks on either side of the pond are necessarily wrong to believe that price rises are transitory. The peak may be a bit higher than predicted but their assumption that inflation will settle back in due course could turn out to be correct.

Let’s hope so. It would certainly be reassuring to those of us whose memories stretch back to a time when we last misjudged the inflationary straws in the wind. Central banks, notably the Federal Reserve under former chair Arthur Burns, ignored the warning signs of rising prices in the late 1960s and early 1970s, and we know how that ended. Inflation never looks like being a problem until it is a big one. It’s far better to keep the genie in the bottle than to have to stuff it back in again.

This week I took questions from investors about my quarterly Investment Outlook. The most popular topic by a country mile was inflation: should we worry; what can we do about it; where are the opportunities? Reading those questions, it struck me that inflation is not a one size fits all problem. Depending on our age and circumstances we will experience inflation in different ways.

For my parents, now in their eighties, inflation was just a given, a part of their world view. They would prefer to spend money today in the knowledge that it would be worth less next year. They were happy to take on seemingly eye-watering mortgage debt because they knew that within a few years, rising house prices and salaries would reduce the burden to a more manageable level. The conventional wisdom was to buy the most expensive house you could stretch yourself to afford.

The biggest difference between my parents’ experience and mine and that of my now adult children, is that inflation was not really their problem to solve. They worked in the public sector (Air Force, teaching) so their salaries and subsequently their pensions were a political rather than a commercial decision. The 1970s was a dreadful period for asset prices – both shares and bonds performed terribly, as investors questioned whether capitalism even had a future. But the collapse in valuations between the mid-1960s and 1982 was an ‘out there’ kind of problem for a family in the embrace of the state.

For my generation, on the brink of what we hope will be a long and healthy retirement, the prospect of inflation is a much bigger concern. I hesitate to complain too loudly because, like many people in their fifties, I too have been a beneficiary of rising asset prices. My children smile through gritted teeth when I tell them that we put down £3,500 to buy our first, inner London, flat in 1989.

But, while there are some people my age who will enjoy an inflation-linked final salary pension scheme, they are few and far between. Most of us are setting out on a new kind of financial journey in which the onus will be on us to make sure that what we have managed to accumulate in the last 30 years of our working lives can last out the next 30 years of retirement.

The most important determinant of our ability to do that in any sort of comfort will be whether this week’s inflation numbers are indeed a temporary spike or the first signs of history repeating itself. If you don’t know the Rule of 72, now would be a good time to familiarise yourself with it and to pass it on to your kids.

If you want to know how long it will take for rising prices to halve your spending power, simply divide the current inflation rate into 72. At just 4pc a year, half-way between this week’s headline inflation rates in the US and here, it will take just 18 years for the pound in your pocket to be worth 50p. At 6pc inflation, it will take just 12 years. You will need to have put aside a great deal for that not to matter.

It is my children, all now in their twenties, that concern me more. They have the advantage over those heading into retirement that their incomes can rise in line with prices. Let’s hope they do because that has not been the reality for many since the financial crisis. And they are starting out with property prices high and interest rates low, the mirror image of my experience 30 years ago. I suspect they will look less kindly on inflation than their parents and grandparents have been able to.

Governments like a bit of inflation. Central banks think they can achieve it. It’s the rest of us who will have to deal with the consequences if they can’t.

If you have questions and would like your financial situation to be evaluated, please email us on with your contacts, for an exploratory meeting, at our cost, not yours.

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2020-21 financial year in review

2020-21 was a remarkable year of economic and market recovery, but COVID-19 risks remain

Despite the ongoing threat of COVID-19, massive fiscal and monetary support measures were successful in engineering an extraordinary global economic recovery. Share markets recorded very strong gains in response, offsetting the large losses in the March quarter 2020 when COVID-19 first spread across the world. Confidence that the recovery in economic activity and corporate earnings can be sustained received a significant boost in November 2020 when the successful development of a number of vaccines were announced. Markets are hoping that rising vaccination rates will reduce the necessity for disruptive social and business activity restrictions.
However, vaccination progress varies across countries and the emergence of COVID- 19 variants such as the highly infectious Delta strain means that the world has a long way to go before returning to ‘normal’.

The global economy staged a remarkable recovery despite the presence of COVID-19

The economic recovery has been ‘multi-speed’ with the US and China rebounding strongly while Europe and Japan have lagged in comparison, due principally to social mobility restrictions to halt the spread of the virus.

Thanks to the powerful combination of monetary and fiscal support by the US Federal Reserve (the Fed) and the US government, the US economy recovered strongly from the disastrous decline in the June quarter 2020. The economy grew at an annual rate of 6.4% in the March quarter 2021. The recovery that was evident by the end of the 2020 calendar year was reinforced by the massive spending agenda of newly elected President Biden. Two stimulus packages were announced in the first 100 days of his Presidency. The US$1.9 trillion American Rescue Package which passed through Congress in March provided US$1,400 individual payments to all Americans (following December’s $600 payment) plus a range of handouts including an extension of support for the jobless until August. President Biden also proposed a US$2 trillion infrastructure spending plan though this was scaled back to
$973 billion to help its passage through Congress. As the economy improved, the unemployment rate fell from a high of 14.8% in May 2020 to 5.8% by May 2021, although this remains well above the pre-pandemic 3.5% in February 2020. According to US payrolls data, there are still 7.6 million fewer jobs than in February 2020.

China’s economy rebounded strongly following the sharp contraction early in 2020. China’s assertive stimulus measures helped the economy grow by 18.3% in the March quarter although this is measured from a low base a year ago. Signs that China’s economic activity was moderating emerged later in the year as stimulus measures were wound back or removed.

In Europe, the implementation of activity restrictions including curfews across the continent late in 2020 in response to high rates of infections slowed the eurozone’s recovery. The 0.7% decline in the December quarter’s gross domestic product (GDP), followed by a 0.6% contraction in the March quarter, represents the eurozone’s second technical recession in 12 months.

The UK economy experienced similar challenges as COVID-19 infections were high for much of the year. UK GDP has yet to return to pre-COVID levels. However, the UK has implemented its vaccination programme with great success, allowing for restrictions to ease. Barring the spread of the new more infectious COVID-19 variants, the Bank of England expects the economy will recover strongly in the remainder of 2021.

Japan’s economic recovery has also lagged other developed economies as it has been forced to contend with waves of virus infections and a comparatively low population vaccination rate. In April, a third state of emergency was reintroduced covering Tokyo, Osaka and two prefectures to combat the latest outbreak of infections. This has entrenched divergent performances within the economy with exports surging from last year’s lows as a result of the global economic recovery while domestic based industries such as retail continue to struggle. Japan faces the added pressure of hosting the Olympic Games commencing on 23 July following their postponement last year.

Australia’s economy also staged a remarkable turnaround, although at considerable cost as the Federal Budget deficit forecast of $161 billion is the highest for decades. However, the deficit is below earlier forecasts, thanks to a better than expected economic recovery and the 108% rise in the price of iron ore which is Australia’s largest export.

After contracting -7.0% in the June quarter 2020, Australia’s GDP expanded by 3.4% in the September quarter, 3.1% in the December quarter and a further 1.8% in the March quarter. While the rate of recovery has moderated, the economy still grew 1.1% in the year to 31 March to be above pre-pandemic levels. This is an impressive result, especially as the state of Victoria was forced to implement stage 4 restrictions in early August for an extended period due to a spike in COVID-19 infections. The tapering of some government support measures also created challenging circumstances for some households and businesses.

Signs of Australia’s recovery were widespread although some sectors remain constrained as a result of COVID-19. The revival in the jobs market and hours worked saw the number of people employed recover to pre-pandemic levels by March 2021 and the unemployment rate fall from a high of 7.5% in mid-2020 to 5.1% in May 2021. Record low interest rates contributed to a 40% rise in housing construction approvals and prices for dwellings increased across the country. The 5.4% March quarter rise in residential property prices was the strongest quarterly growth since the December quarter 2009. Consumer spending has rebounded strongly while recent business and consumer sentiment surveys suggest that Australia’s economic recovery still has considerable momentum, barring a serious rise in infections.

Out with deflation, in with inflation

One of the unexpected consequences of the global pandemic and the economic recovery that began in the middle of 2020 has been the emergence of inflation pressures.

The higher inflation readings were accentuated by the ‘base effect’ as current prices for goods and services are measured against prices a year ago that were generally lower due to the pandemic-induced collapse in demand. The substantial economic recovery following the rollout of massive fiscal and monetary support measures caused demand to rebound, outpacing the supply of many goods and services. This was especially the case for manufactured goods as the closure of factories early in the pandemic, firstly in China followed by the rest of the world, created supply shortages at a time of rising demand. The pandemic also changed demand patterns with stay-at-home workers shifting their consumption to goods at the expense of services.

Supply chain and transportation disruptions also contributed to price inflation. Sea and air freight capacity fell due to shortages of containers and fewer flights, resulting in higher container and freight costs. Aside from the impact of supply bottlenecks and disruptions, prices for some commodities were pushed higher by investors seeking inflation hedges. In the year to 30 June, the London Metal Exchange price of copper was up 55.4% while the price of silver increased 44%.

Evidence of reflation was widespread although not all economies experienced inflation pressures to the same degree. Canada’s 3.6% inflation rate for the year to the end of May was the highest for a decade. Britain’s 2.1% inflation in the year to May 2021 was above the Bank of England’s 2.0% target for the first time in two years while in the US annual headline inflation reached 5.0%, the highest it has been since August 2008. Eurozone inflation increased to 1.6% in April and there are expectations that it could continue rising and exceed the European Central Bank’s (ECB) 2% target as the economy continues to recover in the second half of 2021.

In contrast, deflationary conditions persist in Japan with the -0.1% year on year decline in consumer prices the eighth consecutive month of falling prices. At 1.1% for the year to 31 March, Australia’s inflation pressures remained subdued and well below the Reserve Bank of Australia’s (RBA) 2-3% target band. However, as in Europe and other parts of the world, the RBA expects inflation to rise temporarily as the economy continues to recover. It’s in the US where a sustained pick-up in inflation is more likely as massive spending by the government and ultra-low interest rates could result in a further substantial economic expansion.

Despite the widespread evidence of higher inflation and potential for further rises in the second half of 2021, most central banks have avoided changing interest rate policies. This is because they expect price pressures to be “transitory” and eventually recede as supply side disruptions abate. In Australia, the RBA’s guidance is that interest rates are on hold until 2024. In the eurozone, the ECB is keeping its policy settings and bond purchasing program steady despite upgrading growth and inflation forecasts for the second half of 2021. The Bank of England maintained the Bank Rate at 0.1% and continued with its supportive bond purchase program as it expects any move in inflation above its 2% inflation target to be temporary. However, the US Fed sent the first signal in June that the era of low interest rates will eventually come to a close while also maintaining the view that recent inflation pressures will transition lower to its target range.

Global share markets produced great returns

After enduring sharp and substantial market falls in the March quarter 2020, share investors have enjoyed a remarkable rebound. For the year to 30 June, global shares returned 35.3% on an Australian dollar hedged basis. This was higher than the 27.7 % return for global shares on an unhedged basis as the Australian dollar appreciated in value against some major currencies.

As they are inherently forward looking, share markets chose to look beyond the immediate social and economic dislocation caused by the global spread of COVID-19 and instead focussed on prospects for economic and corporate earnings recovery. These expectations weren’t misplaced as supportive stimulus measures implemented by governments and central banks led to encouraging signs of economic recovery by the September quarter 2020. Market confidence in the longevity of the recovery received a significant boost in November when Pfizer, Moderna and AstraZeneca confirmed they had developed vaccines with encouraging trial results.

Most major share markets closed out the financial year with positive returns. The US share market was by far the best developed market performer, rising by 40.1% (in local currency terms). Aside from the positive response to the vaccine rollout, strong economic data and exuberant forecasts for US corporate profit results underpinned the market’s spectacular rise. Investors were also encouraged by expectations that the new Democrat President Biden would implement more fiscal stimulus measures while also struggling to get the planned 7% corporate tax rise through the Republican controlled US Senate. The US market had been narrowly led prior to the vaccine announcements in November with technology and online shopping giants such as Facebook, Apple, Microsoft, Google and Amazon accounting for much of the market’s rise. However, the focus of investors broadened after the vaccine announcements to include sectors and companies more exposed to the improving economic cycle.

The performance of European markets strengthened throughout the year due to the gradual relaxation of lockdown restrictions, good progress with vaccinations, improving economic conditions globally and the ECB’s commitment to keeping interest rates low, all of which underpinned confidence that Europe’s economy would recover strongly through the remainder of the 2021 calendar year. Germany’s DAX Index increased by 26.2% and the French CAC Index rose by 35.5%. Despite the dire economic consequences of COVID-19 in the UK in the December half and a worrying escalation in the rate of infections late in the year, the UK’s FT 100 Index still managed to rise by 18.0% over the year. China’s strong recovery helped the MSCI China Index to increase by 16.8%, which also contributed to the 29.2% (unhedged) return of the MSCI Emerging Markets Index. Elsewhere in Asia, Japan’s Nikkei Index gained 31.3% as the global economic recovery benefitted its manufacturing exporters.

Our share market also performed strongly

Australia’s share market also performed well with the ASX200 Accumulation Index returning 27.8% in the year to 30 June. This was our market’s highest financial year return for more than three decades. As in other parts of the world, supportive fiscal measures by the Federal and state governments and initiatives by the RBA that included reducing the cash rate to a historic low of 0.1% were successful in restarting the economy. Corporate profits improved with some companies, particularly the large banks, increasing dividends and payout ratios.

As numerous lockdowns across Australia during the year forced people to spend more time at home and prevented travel, the industry sector that produced the best return was Consumer Discretionary with an increase of 46.1%. Companies such as Wesfarmers, JB Hi-Fi and Harvey Norman experienced significant demand growth as people spending more time from home undertook maintenance and put in place work-from-home office infrastructure. Information Technology increased 39.8%, emulating in part the performance strength of the US technology companies as well as strong price performance by AfterPay.

The Materials index was another strong performer. The 34.5% rise was due largely to ideal market circumstances for the iron ore miners BHP, Rio Tinto and Fortescue Metals Group as strong Chinese demand and constrained Brazilian supply pushed the iron ore price upwards by 108.4%. This led to higher earnings and dividends for shareholders.

Of greater significance to the market and a key contributor to its financial year return was the revival in performance of the four large banks – Commonwealth Bank, ANZ, National Australia Bank and Westpac – which collectively account for approximately 18% of the ASX200 index value. The Financials ex A-REIT index increased 40.6% in the year. After suffering sharply lower profits last year which resulted in markedly lower dividends, the banks have been significant beneficiaries of the economic recovery in Australia and New Zealand. Bank share prices rebounded as investors grew confident that the economic recovery would result in lower loan deferrals and bad debts and revive credit growth. Commonwealth Bank reached an all-time high of over $100 per share during the year. The strength of the Australian residential property market and high demand for housing finance also benefitted the banks. The most recent half year profits were above the previous half year results and dividends were also higher. While limitations imposed by the prudential regulator APRA on banks’ dividend payout were removed late in 2020, bank payout ratios (dividends paid as a % of earnings) remain below pre-COVID levels.

Fixed income markets also recovered

The recovery in the global economy was reflected in varying ways across the fixed income landscape. While plentiful government and central bank support provided a strong tailwind to most credit assets, this also gave rise to higher inflation expectations, which hurt the performance of long duration fixed income securities.

By July last year, financial markets were already firmly in recovery mode, thanks to the extraordinary levels of fiscal and monetary support. While this was effective at providing liquidity and preventing the cascading wave of defaults and distress that many investors had feared, it was the combination of the US election results (and associated promises of further massive stimulus) and the approval of several vaccines that led to real confidence in a strong rebound from the pandemic. This was reflected in a rapid rise in government bond yields in February and March this year, as investors sought higher-returning opportunities elsewhere. Rising inflation expectations were another driver of rising bond yields, due to a combination of stronger than expected consumer demand, supply chain disruptions, promises of continuing plentiful fiscal stimulus, and central banks committing to letting inflation run somewhat higher than target until the economy has fully recovered.

In the US, 10-year government bond yields rose from 0.9% at the beginning of the year to 1.7% at the end of March, a sell-off that led to one of the worst quarters of performance for bonds in the last 30 years. It was similar in Australia, with the 10-year bond yield rising from 1.0% to 1.8% over the quarter, and there were even signs of life in Germany with the 10-year bond yield rising from- 0.6% to -0.3%. The last three months of the financial year saw some reversion, as the US Fed in particular showed signs they might respond to inflation pressures by hiking cash rates earlier than expected, thus reducing the chances of an inflation break-out over the longer term.

In credit markets, the support provided by policy makers allowed companies to raise record levels of debt as they sought to build a buffer to see them through the COVID-19 crisis. However, the cost of that borrowing has been extremely low, and at the same time earnings have been stronger than feared, meaning companies are generally well capitalised and unlikely to face financial difficulties over the next year or two. Default rates over the past 12 months were much lower than expected this time last year, and looking forward, default expectations even among the lowest-rated companies are lower than they have been for many years. This has been reflected in pricing, with credit spreads compressing to post-GFC lows across most sectors of the credit markets, delivering strong outperformance for credit relative to government bonds.

In terms of index performance, global government bonds delivered -1.4% over the year to 30 June, with investment grade corporate bonds higher at 2.7% over the year in Australian dollar (hedged) terms. Australian bonds (-0.8%) slightly underperformed global bonds (-0.2% hedged). High yield bonds performed strongly to deliver 10.0% (hedged) for the year to 30 June, outperforming floating rate bank loans (9.4%). Australian inflation-linked bonds returned 4.3%, well ahead of nominal bonds, benefitting from higher than expected inflation and rising inflation expectations.

Geopolitical issues were prominent as the year progressed

The US Presidential election in November was a major focus for markets. The strong performance of the US economy at the beginning of the year was expected to favour the incumbent President Trump. However, the economic damage caused by COVID- 19 and the indifferent and inadequate response by the Trump administration to the worsening health crisis enabled the Democratic nominee Joe Biden to win the Presidency. Predictions the Democrats would easily win majorities in both the House of Representatives and Senate proved to be wide of the mark. The Democrats held the House but with a smaller majority while the Democrats secured the balance of power in the Senate (early in 2021) after winning two run-off elections in the state of Georgia. The incoming Vice-President Kamala Harris will have the casting vote in the Senate as both the Democrats and Republicans have 50 seats each for the next two years.

The Brexit saga continued through the year. After securing parliamentary agreement early in 2020 for the withdrawal, the terms of Britain’s exit from the European Union was finally agreed between Brussels and London and ratified just days before the 31 December deadline.

A concerning development was the deteriorating diplomatic and trade relationship with China, our largest trading partner and destination for approximately a third of Australia’s total exports. A number of issues over an extended period have contributed to the growing tension, including banning Huawei from tendering for the 5G mobile network, introducing “foreign interference laws” on national security grounds, Australia speaking out on the South China Sea and human rights issues in China and the call for an inquiry into the origins of the coronavirus pandemic. China imposed high tariffs or import restrictions on a range of Australian agricultural and food exports such as barley, beef and wine and also coal. Exports of iron ore to China have not been affected so far as it is a commodity that is crucial to China’s ongoing infrastructure development and supply from Brazil remains restricted. Should this change, the impact on Australia’s economy, government revenue, share market and currency would be great.

This information may constitute general advice. It has been prepared without taking account of an investor’s objectives, financial situation or needs and because of that an investor should, before acting on the advice, consider the appropriateness of the advice having regard to their personal objectives, financial situation and needs.

If you have questions and would like your financial situation to be evaluated, please email us on with your contacts, for an exploratory meeting, at our cost, not yours.

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