Contributions, Property, Tax

Mortgage debt shouldn’t sacrifice contributions

Concessional contributions Mortgage GSFM

Paying off a mortgage should not be seen as a reason for not making additional concessional contributions towards superannuation.

Individuals should not forego making concessional contributions to their superannuation fund in order to pay off an existing mortgage commitment as doing so could produce an adverse financial outcome, a mid-tier accounting firm director has suggested.

“Making extra concessional or deductible [super] contributions is actually one of the biggest personal tax savings that people can have,” HLB Mann Judd wealth management director Lindzi Caputo noted.

“We often hear from people: ‘I’ve got a mortgage to repay so why would I make extra contributions to super if I could direct that money to the mortgage?’ But when we actually look at the numbers, [making] deductible contributions to super [often results in] a much better return because of the significant tax saving [that comes from doing so].

“So depending on the situation, it can be almost a 30 per cent return on the contribution that you make into super because of the tax saving you’re getting personally.”

Caputo pointed out in addition to the tax advantage, the individual will also enjoy the benefit of having the money channelled into the superannuation system compound and grow in the long term.

To this end, she revealed the accounting firm is encouraging clients with the appropriate circumstances to make an additional concessional contribution of $5000 each year while formulating their cash-flow plans.

“If you’re a high-income earner, it’s really important that you’re not missing out on any deductible contribution opportunities because maximising those concessional contributions in those wealth-building years is what could help build that super balance long term,” she said.

Further, she recognised building a super balance through making additional concessional contributions each year can achieve more diversity in a person’s investments as this can help them avoid having the majority of their money tied up in the family home in their retirement years preventing them from generating sufficient income during that phase of life.


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