Did you know that all Australians are now eligible to make tax-deductible super contributions subject to an annual $25,000 cap? Previously, only those with over 90% income from self-employment were eligible.
This change to superannuation occurred last year but with focus on the new $1.6 million limit to all in the pension phase the relaxation of the eligibility rules for tax-deductible super contributions may have been overlooked. These changes will appeal to many salaried people.
In the past, if you were on a salary or you earned more than 10% of your income from a salary you could not make personal deductible contributions into super. Only those with less than 10% from a salary or wages could. (The fully self-employed)
You may have been able to make a salary sacrifice arrangement with your employer to gain the effect of getting a tax deduction.
However, not all employers offered the ability to salary sacrifice and a salary sacrificing arrangement also had to be put in place before the salary was earned which generally stopped people from sacrificing their annual bonus.
Those that did have a salary sacrifice arrangement saw their employer deduct contributions each pay but may only remit the contributions to the super fund quarterly. The new rule allows you to make personal contributions at a time of your choosing within a financial year and see the funds invested straight away.
This also means you can make a tax-deductible sacrifice to super of a bonus after you receive it rather than having to have a plan put in place prior to receiving the bonus.
This change improves the flexibility of the super system so that more Australians can use their concessional contributions cap. A change for the better with super who would have thought?
Be aware though you need to make a contribution prior to 30 June. Don’t leave it till the last minute.
Example
Helen is employed as a manager and during 2017–18 earns $100,000 in salary and wages. Helen’s employer will pay $9,500 in Superannuation Guarantee (SG) over the year to Helens super fund.
Helen can make up to an additional $15,500 deductible super contribution ($25,000 cap less the $9,500 SG made by her employer) direct to her super fund.
Helen can claim a deduction for her personal super contributions of $15,500 in her 2017–18 tax return and reduce her personal tax by $5,932.50.
The $15,500 pays a 15% super contributions tax ($2,325). Leaving Helen $3,607.50 better off and the $13,175 invested in a tax effective environment.