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3. What are the tax savings for large deductible superannuation contributions?

In the year ending 30 June 2010 the savings able to be achieved depend on the member’s age, and hence the maximum amount they can contribute, and their marginal tax rate.

Single doctors under age 50 will be at least $4,125 better off in cash, and married doctors under age 50 can be as much as $15,750 better off in cash as a result of paying $25,000 of deductible contributions (including $25,000 for the married doctor's spouse).

Single doctors over age 50 will be at least $8,250 better off in cash, and married doctors over age 50 can be as much as $31,500 better off in cash as a result of paying $50,000 of deductible s contributions (including $50,000 for the married doctor's spouse).

The results are summarized in the following table:

Member's Age	Member's age based limit	Member's net tax rate (plus Medicare Levy)	Maximum tax benefit single person	Maximum tax benefit couple
0 to 50	$25,000	31.5% less 15%	$4,125	$8,250
		41.5% less 15%	$6,625	$13,250
		46.5% less 15%	$7,875	$15,750
50 plus	$50,000	31.5% less 15%	$8,250	$16,500
		41.5% less 15%	$13,250	$26,500
		46.5% less 15%	$15,750	$31,500

Bear in mind tax benefits are cash benefits: you have to (up to) almost double it to calculate the effective pre-tax equivalent income. For example, $63,000 tax-free is the same as $114,545 in pre-tax taxable income, with a marginal tax rate of 45%.

Figures for couples are included because most doctors are able to effectively superannuate their spouse out of their pre-tax income¹. Another reason why super is so good. And this is just the beginning. The tax benefits go on and on, making sure that super is the most tax efficient investment vehicle available.

The ATO View

For completeness, we note that the ATO accepts that a spouse who is an employee can be superannuated up to the deductible contribution limit, ie $25,000 under age 50 and $50,000 over age 50 (until 2012)². This is so even where the amount is excessive relative to the market value of the work done by the employee spouse. Some new rules announced in early 2010 indicate the ATO requires directors of trustee companies to also be employees under the general law before superannuation contributions are deductible to the trust.

We usually recommend a three pronged approach, being:

ensure the spouse is a general law employee and actually completes an appropriate amount of real work for the practice, and pay the spouse a market salary for the this work, to help evidence the employment relationship;
arrange for the spouse to be appointed a director of a company; and
recording in minutes of directors’ meetings the fact that the spouse was under-rewarded in previous years.