Are you entitled to a tax deduction on personal super contributions?

Last financial year was the first time that employees could claim a tax deduction for their personal super contributions.

Personal super contributions made during the 2017-18 financial year can now be claimed as a tax deduction by most Australian workers.

This follows changes made by the government which came into effect on 1 July 2017.

Previously, only the self-employed, unemployed, retirees, or those who earned less than 10% of their income as an employee, could claim a tax deduction for a personal super contribution.

How tax deductible personal super contributions work

Personal super contributions are made using after-tax dollars, such as when you transfer funds from your bank account into your super. This money could come from savings, an inheritance, or from the proceeds of the sale of an asset, for example.

From 1 July 2017, the “less than 10% rule” was abolished. As a result of this change, if you make a personal super contribution, you can now claim a personal tax deduction for the amount of the contribution in your tax return. This will result in a reduction in your taxable income and, therefore, in your personal income tax liability for the relevant year.

Because personal contributions to your super fund (which you claim a tax deduction for) will only be taxed at 15%, this produces broadly the same tax benefit offered by salary sacrificing from before-tax dollars into your super.

This change is of particular benefit to you if your employer doesn’t offer you the option to salary sacrifice, or if you receive a windfall (such as a bonus), or a one-off capital gain (such as through the sale of an investment), that you’d otherwise pay tax on at your full marginal rate.

The Association of Superannuation Funds of Australia (ASFA) estimates that the rule change means an additional 850,000 people will be able to claim a tax deduction for personal contributions made to their superi.

But while there can be a tax benefit to making a personal tax-deductible contribution to your super, it’s worth remembering that you’re then generally not able to access the money you put into your super until your retirement.

What do I need to do to benefit?

In order to benefit from the change, there are some steps you need to take – in order – so it’s worth considering your position ahead of the end of the financial year. If you’d like to benefit from a tax deduction on a personal super contribution, in the following order, you’ll need to:

  1. Make a personal contribution to your super. The amount you choose to contribute is up to you, however, you need to bear in mind your contribution caps (for more on this, see below).
  2. Lodge a notice of intent to claim or vary a deduction for personal super contributions formii with your super fund, which your super fund will acknowledge, in writing.
  3. Following the end of the financial year and using the written acknowledgement from your super fund, which will confirm both your intention to claim a tax deduction and the amount you can claim, prepare and lodge your tax return.

What else do I need to know?

There are a few extra considerations to keep in mind. These include:

 

Speak to us to determine whether claiming a tax deduction on personal super contributions is the best strategy for your circumstances.

 

i ASFA, New super rules to benefit more than four million Australians, 2017, paragraph 7.

ii https://www.ato.gov.au/uploadedFiles/Content/SPR/downloads/n71121-11-2014_js33406_w.pdf

© AMP Life Limited. First published April 2018


Axios Financial Solutions are a team of respected and highly regarded financial planners with offices on St Kilda Rd Melbourne.  Axios helps their clients meet their desired outcomes by providing tailored financial services, strategies, advice and solutions.  You can contact them at info@axios.com.au or (03) 9869 5555.

Axios Financial Solutions Pty Ltd (ACN 007 299 014), is an Authorised Representative of Charter Financial Planning Ltd, Australian Financial Services Licensee 234665

Please note that the information in this article is of a general nature only and has not taken into consideration your individual circumstances. Should you wish to discuss your personal circumstances please call us on 03 9869 5555 or email info@axios.com.au.

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480 St Kilda Road
Melbourne Vic 3004