In the excitement of the introduction of sweeping superannuation changes on 1 July 2017, a new superannuation contribution opportunity may have gone unnoticed by many people. From that date, anyone eligible to make personal super contributions can claim that contribution as a personal tax deduction, regardless of their work status. This change is a result of the removal of the ‘10% test’ which generally meant you had to be self-employed or have no employment income in order to claim a deduction for your super contributions.
This is the first financial year that most people – including those who work for an employer - can use this strategy, even if you are already making salary sacrifice contributions. It’s an opportunity to make lump sum or regular contributions up to 30 June to maximise use of the $25,000 concessional contribution cap and potentially reduce your personal tax liability.
There are a few things to consider:
- you can only contribute to superannuation if you are under age 65, or if you are between 65 and 75 years of age and meet the work test (which constitutes 40 hours of gainful employment during a 30 day period),
- any contributions for which you claim a personal deduction will count toward your $25,000 concessional contribution cap (which also includes your Superannuation Guarantee and any other employer contributions you receive), and
- if you are earning over $250,000 p.a, your contribution may be taxed at up to 30% due to the application of Division 293 tax (an extra 15% on top of the general 15% contributions tax).
Process for making tax deductible contributions
Firstly, you will need to make your super contributions before 30 June 2018 if you want to ensure they are counted towards the 2017/18 contribution cap. As a general guide, a super contribution is made when it is received by the super fund. For example, you are contributing electronically via BPAY, the contribution is deemed to have been made when the funds are credited to the super account, not the day you make the BPAY transaction. Individual super funds will also have specific requirements and deadlines towards the end of the financial year which they will usually publish on their websites. If you have an SMSF, you should consider timing your transfer to ensure it will be received in your account by 30 June (and note, 30 June 2018 is a Saturday).
Notice of Intent form
You will need to lodge a ‘Notice of Intent’ form with your super fund by the earlier of:
- the date your tax return is lodged for the year the contribution was made, or
- the end of the financial year following the financial year in which the contribution was made.
Your fund cannot accept a Notice of Intent if:
- you have exited the fund (e.g. rolled over your funds to another super fund, or withdrawn them), or
- the contribution(s) being claimed have been paid out as a lump sum or used to start a pension, or
- you have submitted a spouse contributions-splitting application (that hasn’t been rejected by the fund).
This Notice of Intent is critical to ensuring you can claim a deduction for your contribution, so if you have any questions about how it operates, contact your super fund or your financial adviser.
Claiming a deduction for personal contributions to super may not be for everyone, and it’s worth noting that salary sacrifice may still be a more attractive strategy. The good news is that you can make a contribution under these rules at any time up to 30 June, but get it in on time.
Gemma Dale is Director, SMSF & Investor Behaviour at nabtrade, a sponsor of Cuffelinks. This article has been prepared without taking into account your objectives, financial situation or needs. Before acting on any this information, we recommend that you consider whether it is appropriate for your circumstances.