There are limited opportunities to reduce your taxable income these days but there was some great news announced in 2017 regarding the rules around who could make personal tax-deductible super contributions.

Before this financial year, 2017-18, you could only claim a tax deduction for personal contributions if you either weren’t an employee or received less than 10% of your total income from an employer. This meant that generally only self-employed people or those living on an investment income stream, such as retirees, could benefit.

This restriction has been removed from 1 July 2017 so you may be able to claim a tax deduction regardless of your employment situation. This change means that any personal contributions you make throughout the financial year, including from a bonus or redundancy payout, could potentially reduce your taxable income.

Personal contributions for which you claim a tax deduction are treated as concessional contributions and are taxed at only 15%, rather than your marginal tax rate (except for those with high incomes subject to an extra 15% Division 293 tax). Thus, if you have some available cash and confirm that you are eligible to contribute you will save tax if your marginal tax rate is above 15%. You will also boost your retirement savings.

How it works

There are a number of things you must be aware of.

Firstly, a $25,000 cap applies to your concessional contributions each financial year before more tax applies – this cap includes all contributions made by your employer as well as your personal tax-deductible contributions. Before making an additional contribution check carefully what has gone into your Super since 1 July and allow for anything your employer will put in before 30 June. Be extra careful if you have multiple super accounts.

Secondly, if you do decide to make a deductible contribution ensure it is received and recorded by your Fund before 30 June. Late contributions won’t be eligible for a tax deduction this year and will count against your $25,000 cap for next year.

There are also age restrictions and requirements for those under 18 or over 65 that you need to be mindful of. Those aged between 65 and 74 must meet the work test.

Thirdly, to claim a tax deduction for your personal contributions, you’ll need to complete a Notice of Intent to Claim form and submit it to your super fund within the required timeframes. Don’t be late or you won’t be able to claim the tax deduction. Make sure that your Fund has confirmed your contribution with you in writing before you submit and claim a deduction on your tax return.

For older people, it’s also important to note that you need to submit any Notice of Intent to Claim form prior to rolling or cashing money out of your super fund or using it to commence an income stream – if you don’t then the deduction you’ll be able to claim may be significantly reduced (in some cases to nil). There are also further restrictions depending on the fund to which you’re contributing – for instance, you can’t claim deductions on personal contributions to certain untaxed and defined benefit Government super schemes.

This newsletter contains general advice. It does not take into account your individual objectives, financial situation or needs. You should consider talking to a financial adviser before making a financial decision. 

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