A great thing about super is you may be able to contribute pre-tax salary (if you’re an eligible employee) or claim personal contributions as a tax deduction.
With your mortgage, on the other hand, repayments are made with after-tax income and are not tax deductible (unless the property is an investment and other conditions are met).
Saving more in super can be a smarter way to use your extra money.
The table below illustrates the additional benefit of investing in super at different income levels, assuming $10,000 in pre-tax income is available.
For example, if you earn between $120,001 and $180,000, with $10,000 in pre-tax income, you could make a net loan repayment of $6,100 or invest a net amount of $8,500 in super. That puts you $2,400 ahead by making extra super contributions.
| Taxable income | Home loan repayment | Net super investment1 | Benefit from investing in super | ||
|---|---|---|---|---|---|
| Marginal tax rate2 | Tax payable | Net loan repayment | |||
| $45,001 to 120,000 | 34.5% | $3,450 | $6,550 | $8,500 | $1,950 |
| $120,001 to $180,000 | 39% | $3,900 | $6,100 | $8,500 | $2,400 |
| $180,000 + | 47% | $4,700 | $5,300 | $8,500 | $3,200 |
2 Includes Medicare Levy.
While super is generally more tax-effective, the next table compares some other issues.
Importantly, investing more in super wouldn’t be a suitable option if you needed the money before you retire. But you may be able to use some of the additional super you build up to make a large mortgage repayment when you retire and end up ahead.
There are, however, some caps on how much you can contribute to super and use to start a retirement pension, which may impact your decision.
We can help you weigh up the pros and cons and decide how to use surplus cashflow to achieve your near and longer-term needs.
| Invest in super | Repay mortgage |
|---|---|
| Earnings depend on chosen investment strategy, market conditions and time horizon | Net investment earnings at home loan interest rate |
| Money can't be accessed until you retire or meet other conditions | Money can usually be re-drawn at any time |
| There are caps on how much you can contribute to super and use to start a retirement pension | There are no legislated caps that apply to mortgage repayments |
