However, due to the current contribution caps and rules, this also means that planning ahead over the longer term is the most effective way to maximise the potential benefits of super. Particularly worth noting, are the recent changes which allow for the ability to claim tax deductions on personal super contributions.
The concessional contribution cap of $25,000 applies to everyone, regardless of their age or superannuation balance. The ‘less than 10 per cent employment income’ rule no longer applies when looking to claim a tax deduction for personal superannuation contributions. Broadly, anyone who is eligible to contribute to super can claim a tax deduction for their personal contribution (other conditions apply, talk to your adviser). Keep in mind the 9.5% SG contribution from your employer is counted in this amount.
Clients who already make salary sacrifice contributions may be asking, “what’s the big fuss around personal tax-deductible contributions”? In the end it creates the same tax effective outcome whether you choose to do this regularly via employer salary sacrifice or “ad hoc” via personal lump sum contributions. While this is true, there can be some advantages for people in the following circumstances:
The ‘paperwork’ requirements to qualify for a deduction for a personal superannuation contribution have not changed. The member must complete a valid Notice of Intention (NOI) to claim a tax deduction and lodge this with their super fund.
To be eligible to claim a tax deduction for a personal contribution, clients must notify the super fund of their intention to claim a tax deduction using the NOI and receive an acknowledgement from the fund by whichever of the following dates occurs first:
Personal super contributions that the ATO allows as a tax deduction in the individual’s tax return will count towards their concessional contribution cap.
If employer super contributions are also received, clients will need to make sure these are taken into account when determining how much to claim as a personal tax deduction.
Also requiring consideration is the individual’s tax-free threshold: effectively $21,594 in 2018–19. Clients who bring their taxable income below these thresholds by making salary sacrifice and/or personal deductible contributions will find that they are paying contributions tax (15%) in the super fund when they could be paying zero tax personally. The amount of personal contributions that can be claimed as a tax deduction is also limited to the member’s taxable income, i.e. taxable income cannot be reduced below zero.
We encourage you not to leave things to the last minute. Super contributions are generally allocated and count towards a client’s contribution cap in the year in which they are received by the fund. Clients need to accordingly allow several business days for contributions made by BPAY® or similar methods to reach the fund.
Business owners should also consult their accountant or business advisor to consider other taxation and reporting matters, such as finalising trust distributions, claiming asset write-offs and the amount of personal super contribution to claim a tax deduction for.
Need some help to get started?
For more help and strategies on taking care of your super contributions, speak to your planner at SFP. Or if you don't have a planner yet let us arrange an appointment, contact us on 02 9328 0876.
Article by Sydney Financial Planning
General Disclaimer: This article contains information that is general in nature. It does not take into account the objectives, financial situation or needs of any particular person. You need to consider your financial situation and needs before making any decisions based on this information. Please seek personal financial advice prior to acting on this information.