Q. I am employed full time and receive Employer Superannuation support. In addition, I make personal contributions to my super. I have previously been told that I cannot claim a tax deduction for these contributions. I read recently that this may have changed. Has there been a change in the rules and what are the opportunities?
A. From 1 July 2017, any individual who is eligible to contribute to Superannuation will be able to claim a tax deduction for their personal Super contributions.
Broadly speaking, to be eligible to make a personal Superannuation contribution, you need to be under age 75 at the time of making the contribution and have a Tax file number. If you are age 65 or older you are obliged to satisfy the work test of 40 hours work, in a 30 day period in the financial year that you make the contribution.
Personal Superannuation contributions made, where you intend to claim a tax deduction, count towards the Concessional Contribution Cap. Please note that this cap has been reduced effective 1 July 2017 to $25,000 per financial year. In the 2016-2017 tax year this cap was $30,000 for those age 48 or younger at 30 June 2016 and $35,000 for those 49 or over at 30 June 2016.
It is important to recognise that the Concessional Contribution Cap applies to all Employer and Personal Deductible Contributions in aggregate per Financial Year. You need to be aware and monitor how much Employer Superannuation support you receive when it is received by your fund and within which Financial Year. So be careful, a liability for an Employer Contribution may arise in one financial year but may be paid by the employer in the next financial year. Contributions that exceed the Concessional Contribution Cap are taxed at your marginal tax rate and will count towards your Non-Concessional Contribution cap.
In order to claim a tax deduction for personal contributions to Super, you will need to give written notice to your Superannuation fund. This is typically done by submitting a Notice of Intent that you wish to claim a tax deduction for all or part of the contribution you have made to the fund within the specified time frames. This notice must be submitted prior to you lodging your tax return.
The new Deductible Personal Superannuation contribution rules will be of benefit to those who have a mix of employment and self-employment. Previously these individuals were unable to claim a personal tax deduction if their employment income was greater than 10% of their taxable income.
Others that stand to benefit will be individuals whose employers previously did not allow Salary Sacrifice. These individuals will now be able to control the timing and size of contributions that they wish to make towards funding their retirement tax effectively.
Some employers have exploited the loophole that exists whereby their Superannuation Guarantee obligation is reduced by employees electing to Salary Sacrifice, thereby reducing the income that their Superannuation Guarantee contributions are based upon. The ability to claim a tax deduction for personal Super contributions, will remove this loophole and effectively put these employees in the same position as if they are able to make salary sacrifice contributions without this penalty.
For individuals who have Life Insurance, Total and Permanent Disability Insurance or Income Protection Insurance through their Superannuation fund, they will be able to fund the premium costs as a personal deductible contribution and therefore gain the tax benefit of a tax deduction.