Category: Superannuation

AFTER TAX SUPPERANNUATION CONTRIBUTIONS

2017/2018 is the first year that individuals can reduce their tax liability for the year by making a pre-1 July personal superannuation contribution.  

To recap, new laws were introduced effective 1 July 2017 allowing all individuals up to age 75 to claim an income tax deduction for personal, after-tax superannuation contributions (pre-tax contributions, also known as salary sacrifice contributions, are deductible to your employer not you). Before this date, you could only claim a deduction for your personal contributions where less than 10% of (a) your assessable income (b) your reportable fringe benefits and (c) your reportable emaployer superannuation contributions (e.g. salary sacrifice contibutions) for the year were from being an employee – this was known as the “10% Rule”. This rule prevented most employees from claiming a tax deduction for their personal after-tax superannuation contributions.

To claim a deduction, the standard requirements that existed under the old rules must also be satisfied as follows: 
  • Age – All individuals under the age of 65 are eligible. Those aged 65 to 74 must meet the superannuation ‘work test’ (work for at least 40 hours in a period of not more that 30 consecutive days in the financial year in which you plan to make the contribution). For those aged 75, the contribution must be made no later than 28 days after the end of the month in which you turn 75 . Older tax payers are ineligible.
  • Minors – If the individual is under 18 at the end of the income year in which the contribution is made, they must derive income in that year from being an employee or carrying on a business.
  • Compying Fund – The contribution must be made to a complying superannuation fund.
  • Notice Requirements – To claim the deduction you must provide your superannuation fund with a Notice of intention to claim a deduction form before you lodge your tax return in respect of that financial year.
Note that the maximum deduction that you can claim is $25,000. This is the amount of the concessional contributions cap. As well as your after-tax contributions, included in the $25,000 cap are:
  • Employer contributions (including the compulsory 9.5% Superannuation Guarantee (SG) and salary sacrifice), and
  • Certain amounts transferred from a foreign superannuation fund to an Australian superannuation fund (this won’t affect most taxpayers).
Fo example, if you earned $50,000 for the year from your job, and your employer contributed $4,750, then in effect the maximum amount you could contribute and claim as a deduction would be $20,250 ($25,000 cap, minus $4,750).

https://www.ato.gov.au/forms/notice-of-intent-to-claim-or-vary-a-deduction-for-personal-super-contributions/

The Attraction of Superannuation

Contrbuting to superannuation is still as popular as ever. Personal (voluntary) contributions in the December 2016 quarter (the latest available statistics) were $4,616 billion, up from $4,437 billion in the same quarter a year earlier. Superannuation assets in aggregate were $2,199 billion at the end of the December 2016  quarter, up from the previous quarter which was $2,145 billion, and are now at an all time historical record level. Over the 12 months to December 2016, there was a 7.4% increase in total superannuation assets.

This section details why, even in spite of recent unfavorable changes, contribution to superannuation is still so popular.

Tax Concessions
Superannuation is a concessionally taxed environment. This was highlighted in early 2017, when the Government released its Tax Expenditiurs Statement which stated that in total superannuation tax concessions cost the Government $38.85 billion in revenue in the previous financial year. These tax concessions which make superannution so attractive as an investment include:
CONCESSIONAL TAXATION OF EARNINGS
Superannuation earnings (such as interest, dividends, rent etc.) are taxed at 15% when your account is in accumulation mode (i.e. not in pension mode). These earnings are txax-free when your account is in pension mode. This concessional taxation cost the Government $16.85 billion in foregone revenue in 2015/2016. By contrast, investment earnings on assets (such as shares,property, term deposits etc.) held outside of superannuation are taxed at your marginal tax rate.
Note that your tax liability outside of superannuation may be further reduced by tax offsets such as those for low-income earners and pensioners.

CONCESSIONAL TAXATION OF CAPITAL GAINS
Capital gains made by superannuation funds are likewise taxed at 15% when your account is in accumulation mode. Where a CGT asset supports a pension, any capital gain made when those assets are sold is tax-free. On the other hand, if the CGT asset was held by one of the following entities it would be taxed as follows:
  • Individual – marginal tax rate
  • Company – 30% (or 27.5% for a Small Business Entity)
  • Trust – marginal tax rate of individual.
The tax on a capital gain made by your superannuation is reduced to 10% (a 33% discount) where the asset has been held for 12 months or more. Although this is a lesser discount than the 50% discount available to trusts and individuals, this is negated by the base CGT superannuation taxation reate being so low at 15%.

Cut Your Income Tax
TAX DEDUCTION FOR CONCESSIONAL CONTRIBUTIONS
Subject to age limits, from 1 Jly 2017 almost all individuals can now claim a tax deduction for their personal concessional (after-tax) contributions that they make to superannuation. Before this date, most employees were unable to do this.

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