Looking for an opportunity to minimise your tax liability for 2017-18?
Increasing contributions to superannuation is a great opportunity, but you will need to act fast - the clock is ticking. The government made changes in 2017 which now allow anyone to claim a personal super contribution as a tax deduction, regardless of their employment status. Prior to 1 July 2017, personal contributions to super were only able to be claimed as a tax deduction for those people predominantly self-employed.
There are conditions to be aware of:
- The tax-deductible contributions are capped at $25,000 from all sources. This means that if your employer is making contributions for you under the superannuation guarantee, the total of the employer contribution and your personal contribution cannot be more than $25,000 for the year.
- Any contribution to super is preserved until you meet a condition of release. In most cases (except some very exceptional circumstances), the condition of release is reaching preservation age (55 years or older depending on your date of birth) and being retired from work.
- Even though you will enjoy a tax deduction on your individual tax return, the contribution will still be taxed at a flat rate of 15% in the super fund. These means that this strategy may not be effective if your own marginal tax rate works out to be 15% or less.
- Tax deductible super contributions cannot be used to create a loss, therefore if you are in business, you need to assess your expected net profit before deciding on the contribution amount.
- The contribution must be received by the super fund by 30 June 2018. Please note that 30 June is a Saturday, so this date is really 29 June. You will need to allow for time to process electronic transfers and for the fund to process the claim so don't leave it too close to the end of year.
- There are age limitations on super contributions. People over 65yo must meet a work test to contribute to superannuation. People over 75yo are not permitted to make additional personal contributions.
- You will need to complete a declaration to give to the super fund advising you intend to claim a tax deduction. This is a simple form but is important because without it the tax deduction is not valid.
If you are currently in a salary sacrifice arrangement with your employer, this can continue as it has the same tax effect as making a personal contribution.
As always, we recommend you seek advice from your accountant, financial planner, or super fund before making a contribution. Just keep in mind the countdown to end of financial year is underway, and contributions after 30 June cannot be treated retrospectively.
Happy End of Financial Year!