If you are a local or state government employee, you will typically be required to contribute a mandatory percentage of your wage to superannuation (usually about 5-6%) which is matched by an employer contribution. In previous years, unless you have been salary sacrificing this amount, this has been regarded as a non-concessional contribution meaning you cannot claim a tax deduction for it and the super fund does not pay tax on the contribution.
Due to changes made in 2017, all employees can elect to treat these contributions as concessional, meaning you can claim part or all of the contributions made in 2017-18 as a tax deduction on your personal tax return and the super fund will pay tax at a rate of 15% on the contribution. If your own marginal tax rate is greater than 15%, there is a clear tax advantage. If you are already salary sacrificing this contribution from your pre-tax salary, these changes will not benefit you because you are already getting the tax advantage.
To claim a deduction for personal super contributions, you need to make the contribution to a complying super fund or a retirement savings account so you need to check eligibility with your fund. For example, if your contributions are going towards a defined benefit account, they will probably not be eligible.
Other Conditions apply:
- The tax-deductible contributions are capped at $25,000 from all sources. This means that the total of your employer contributions, any salary sacrifice you make and your voluntary contributions cannot be more than $25,000 for the 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. You will need the acknowledgement of the notice from the super fund before claiming the tax deduction. This is a simple form but is important because without it the tax deduction is not valid.
For those government and Council employees not currently part of a salary sacrificing regime, this is a great opportunity to claim a significant tax deduction.
As always, please seek advice from your accountant, super fund or financial planner before proceeding.