If you are a salary or wage earner looking to maximise the amount of tax deductible superannuation contributions made in any given year, then this tip is for you.
Prior to 30 June 2017, superannuation fund members were limited in their ability to make deductible concessional contributions especially if they were engaged in employment and in receipt of salary and wage income.
Previously, the most common way to ensure a superannuation member fully utilised their concessional contribution cap was to enter into an effective salary sacrifice arrangement with their employer to sacrifice an amount into superannuation equal to the gap between the cap and the amount otherwise contributed as part of the 9.5% superannuation guarantee framework. This could often be problematic as it required an agreement to be put in place in advance and also relied on the timely remittance of the contributions by the employer within the financial year.
As part of the superannuation reforms introduced on 1 July 2017, rules have been changed which now allow more superannuation fund members to make personal, deductible concessional contributions rather than needing to enter into sacrifice agreements with employers.
Previously, personal deductible contributions were only available to Taxpayers who had income from salary and wages comprising less than 10% of their total taxable income. This limitation has been lifted and from the 2018 financial year onward, Taxpayers will no longer be required to meet the 10% test to make these contributions.
A major benefit of this change is that Taxpayers can make decisions regarding their annual superannuation contribution late into the financial year when their financial and taxation position for the year is clear. Further, it allows the Taxpayer to act unilaterally without placing any obligation on any employer to enter into an agreement or meet the terms of that agreement.
Importantly, where a member makes a personal, deductible superannuation contribution they must make a declaration at the time of each contribution to the superannuation fund of their intention to claim a personal tax deduction for that amount.
These contributions count towards the same $25,000 annual concessional contribution cap that applies to other superannuation guarantee contributions made for you as a salary and wage earner by your employer. Accordingly, maintenance of strong records with regards to contributions is paramount to ensure any personal deductible member contributions made do not result in that annual cap being breached thus exposing you to additional taxation and penalties.
If you wish to know more about your ability to make contributions and the impact it may have on your personal taxation, please call your advisors at Brentnalls NSW on (02) 8252 5555.