$25,000 ATO tax deduction Aussies urged to claim now: 'Can't get it back'

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Expert Ben Nash said there’s a money move you can make at the start of next year that can save you tens of thousands of dollars. (Source: TikTok/Getty)

This year there’s a $25,000 tax deduction that’s going to expire, and once it’s gone it will be gone for good. If you want to take advantage and cut your tax bill, now is the time to act before you miss out.

You are viewing: $25,000 ATO tax deduction Aussies urged to claim now: ‘Can’t get it back’

A while back the government put in some new superannuation rules that allows you to ‘catch up’ on super contributions from previous years. But there is a limit to how far you can go back, which is capped out at five financial years.

That means that once we tick over to July 1 and the new financial year rolls around, the tax deduction on offer will be gone for good.

Under the current rules, everyone can make tax-deductible contributions up to a limit each year.

This limit has recently increased to $30,000 and includes any funds contributed to your super fund by your employer as part of the superannuation guarantee compulsory contribution rules.

But for most people, their employer contributions leave a significant amount of room to create more tax deductions.

For example, for someone earning $100,000 each year, based on the current compulsory super contribution rate of 11.5 per cent, your employer will be putting $11,500 into your super fund, meaning you have $18,500 remaining under your super contribution limit.

To say it another way, you have the ability to put $18,500 into your super fund and claim an $18,500 tax deduction.

If you earn over $45,000, you are paying at least 32 per cent in tax and the Medicare levy, so making an $18,500 deductible super contribution would mean a tax benefit to you of at least $5,920 ($18,500 x 32 per cent).

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If your income and tax rate are higher, the tax benefit would be even greater.

To be eligible to use catch-up super contributions, your super fund balance needs to be below $500,000 by 30 June of the financial year before you make your contributions.

The government recognises that not everyone is in a position to be able to use all of their available super contributions each year.

So under the ‘catch up’ super contribution rules, you’re able to catch up on your unused deductible contributions for the previous five financial years.

And this is where the time pressure comes in.

Each year on July 1, if you haven’t used your catch-up super contributions from the year five years back, the tax deduction available to you effectively expires. Once this tax deduction expires, this is permanent, and you can’t get it back.

For someone earning the average Aussie income five years back, your compulsory super contributions would have been around $9,000, and in that year the super contribution limit was $25,000 – meaning the average Australian will have around $16,000 in catch-up super contributions available.

Technically this tax deduction doesn’t expire until July 1, 2025, but if you wait until June to start thinking about this you may not have a spare $16,000 you can quickly tip into your super fund over only a one-month period.

If you start now, spreading the contribution over 26 weeks, you only need to contribute $615 per week – not necessarily easy, but definitely easier.

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If you’re on the front foot with your planning around this, you can even get your employer to help carry some of the load by setting up a ‘salary sacrifice’ arrangement.

When you salary sacrifice into your super fund, your employer will deduct money directly from your salary and move it into your super fund. The kicker with salary sacrifice comes from the fact that your salary sacrifice expenses are deducted from your pay before tax is applied.

This means that to get $615 into your super fund, you will only see your take-home pay reduce by around $418 per week. The fact salary sacrifice expenses are coming out of your pay before tax is applied makes a big difference.

If you want to take advantage of even just part of this deduction, when you start now your work will be easier.

If you’re serious about getting ahead with your money, you need to use the rules to your advantage and maximise all of the possible moves you have available to you. Smart planning is crucial if you want to make progress.

The early steps you take here are always the hardest, but once taken you start building momentum. This momentum can then be leveraged to make your next move happen faster and easier, but it won’t just happen on its own – you need to take action if you want results.

Ben Nash is a finance expert commentator, podcaster, financial adviser and founder of Pivot Wealth. Ben’s new book, Virgin Millionaire; the step-by-step guide to your first million and beyond is out now on Amazon | Audiobook.

If you want to chat about getting some help with your money, you can book a call with Pivot Wealth here.

Disclaimer: The information contained in this article is general in nature and does not take into account your personal objectives, financial situation or needs. Therefore, you should consider whether the information is appropriate to your circumstances before acting on it, and where appropriate, seek professional advice from a finance professional.

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