Assessing the tax advantages of investment in superannuation

George Rothman
Publication type


Conference Paper 2000/4

Paper presented to the Eighth Colloquium of Superannuation Researchers, University of New South Wales, 10 & 11 July 2000.

The paper considers whether superannuation in Australia remains tax advantaged following the recent significant reductions in income and capital gains taxes.

Two broad areas are analysed :

  • those receiving employer contributions at Superannuation Guarantee (SG ) level over a working lifetime; and
  • persons making one off investments.

For the one off investments the paper distinguishes between member and employer contributions and considers a wide range of alternative investment portfolios, including fixed interest, a balanced investment portfolio, shares only and negatively geared investments.

The paper draws attention to some potential traps which some commentators appear to have fallen into.

It concludes that for persons in all tax brackets receiving SG employer contributions only, superannuation is a tax preferred investment over a working lifetime of up to 40 years duration.

For persons in the 31.5 per cent and higher tax brackets, one off investments through superannuation are relatively advantaged for all ungeared investment portfolios; making the investments through employer contributions, rather than member, gives the higher level of advantage.

For a person in the 18.5% tax bracket, remaining below their ETP free threshold, one off investments through employer contributions are tax advantaged by 4 to 7%. However, in this case, using member contributions gives a higher superannuation advantage (11 to 14%) where the full low income superannuation rebate is available.

Further, for reasonably constructed comparisons using employer contributions and negative gearing for the outside of superannuation investment, superannuation remains the preferred investment vehicle in all tax brackets, with the strong advantage of involving much lower risk than negative gearing.