If you make a gain on the sale of an investment, capital gains tax (CGT) can eat into your profits. But the good news is you may be able to use some of the sale proceeds to help you save on tax and grow your super. It involves making a super contribution and claiming a tax deduction to reduce your tax bill. 

Here’s how it works

When you sell an investment for a profit, the taxable capital gain is added to your other income and taxed at your marginal rate, which can be up to 47%  including Medicare levy. 

But if you use some of the sale proceeds to make a super contribution and claim a tax deduction:

• you can offset some (or all) of the taxable capital gain, and
• the super contribution will generally be taxed at only 15% (or 30% if your income from certain sources is over $250,000).

By using this strategy, you may pay less tax on the sale of the investment. Also, once the money is invested in super, you can benefit from ongoing tax concessions. Earnings in super are taxed at a maximum rate of 15% (or 0% if you’re eligible to start a ‘retirement phase pension’).

Case study – tax savings from deductible super contribution

Anna, aged 42, is self-employed and earns a taxable income of $100,000 pa. She sold some shares for $80,000 and made a taxable capital gain of $20,000. If she doesn’t make a deductible super contribution, the gain will be taxed at her marginal rate of 32%.¹ She’ll therefore have to pay tax of $6,400, leaving $13,600 for her to save, invest or spend. If she makes a deductible super contribution of $20,000, she’ll offset the taxable capital gain and 15% tax ($3,000) will be deducted from the super contribution. By making a deductible contribution, she’ll save $3,400 in tax and add a net $17,000 to her super.

Key issues to consider

It’s generally not tax-effective to claim a tax deduction for an amount that reduces your taxable income below the effective tax-free threshold. This is because you would end up paying more tax on the super contribution than you would save from claiming the deduction.

To be eligible to claim the super contribution as a tax deduction, you need to submit a valid ‘Notice of Intent’ form before certain timeframes. You’ll also need to receive an acknowledgement from the super fund before you complete your tax return, start a pension or withdraw or rollover money from the fund to which you made your personal contribution.

Personal deductible contributions count towards your ‘concessional contribution’ cap. This cap is $30,000 in 2024/25, but may be higher if you didn’t contribute your full concessional contribution cap in any of the previous five financial years and are eligible to make ‘catch-up’ contributions. Tax implications and penalties may apply if you exceed your cap. 

If you’re between ages 67 and 74 at the time you make the contribution, you’ll need to have met a work test or satisfy the work-test exemption. You cannot make a personal deductible contribution if you’re aged 75 or older. 

You can’t access super until you meet certain conditions.

While this strategy has some potentially powerful benefits, you should seek tax and financial advice before going ahead, to ensure it suits your needs and circumstances.

1 Includes 2% Medicare levy