Australian property tax and expatriate tax expert STEVE DOUGLAS explains how to enjoy tax incentives on your superannuation fund.

Q. I’m depositing funds into my Australian superannuation fund – will I get a tax deduction?

A. Overseas residents can still make a contribution to their Australian superannuation fund and it can be claimed as a tax deduction. But some important factors should be considered.

            Contributions can only be claimed as deductions to a maximum that will take your taxable income to nil. For example, if your taxable income from property rental or other taxable items is A$3,000, even if you contribute A$10,000 to your superannuation fund, you’re only able to claim A$3,000. This is important to remember, as you’ll need to notify your superannuation fund manager to ensure they deduct the correct amount of contribution tax and record the balance as a personal contribution. Should you fail to do so, you might end up losing 15 percent of your contribution unnecessarily.

            Maximum annual deductions are A$25,000 if you’re 50 years old and younger and A$50,000 if you’re older. Make your contribution before June 30, as the funds must first be cleared to ensure a tax deduction.

            If you have no other taxable income or a tax loss, then a superannuation contribution will create no tax benefit, as it can’t increase a loss any further. In such a case, it’s better not to make a contribution unless your sole intention is to increase your retirement savings.

            In most cases, cash is better invested under your personal name, as there’s no tax on dividends or capital gains on share investments in Australia for persons living outside of Australia, whereas your superannuation fund may be taxed if invested in contributed funds. Furthermore, if you’re still facing a sizeable mortgage on your intended Australian residence, it’s wiser to keep the money out of the superannuation fund so it can be used to reduce the debt on your home. You can then make additional future contributions from the cash flow savings of having a low or zero private mortgage.

            Superannuation is an important part of retirement in Australia and comes with some special tax incentives. But it needs to be balanced with your overall objectives. Don’t be overly concerned if you’re not contributing to a superannuation fund while overseas, as long as you can see some increase in your overall financial circumstances. Focus on building an increased savings base that can be used to financially support you upon your return to Australia. Once you’re confident funds are sufficient to ensure a comfortable lifestyle, then consider making voluntary contributions into your superannuation fund.