Personal super contributions made during the 2017-18 financial year can now be claimed as a tax deduction by most Australian workers.
This follows changes made by the government which came into effect on 1 July 2017.
Previously, only the self-employed, unemployed, retirees, or those who earned less than 10% of their income as an employee, could claim a tax deduction for a personal super contribution.
Personal super contributions are made using after-tax dollars, such as when you transfer funds from your bank account into your super. This money could come from savings, an inheritance, or from the proceeds of the sale of an asset, for example.
From 1 July 2017, the “less than 10% rule” was abolished. As a result of this change, if you make a personal super contribution, you can now claim a personal tax deduction for the amount of the contribution in your tax return. This will result in a reduction in your taxable income and, therefore, in your personal income tax liability for the relevant year.
Because personal contributions to your super fund (which you claim a tax deduction for) will only be taxed at 15%, this produces broadly the same tax benefit offered by salary sacrificing from before-tax dollars into your super.
This change is of particular benefit to you if your employer doesn’t offer you the option to salary sacrifice, or if you receive a windfall (such as a bonus), or a one-off capital gain (such as through the sale of an investment), that you’d otherwise pay tax on at your full marginal rate.
The Association of Superannuation Funds of Australia (ASFA) estimates that the rule change means an additional 850,000 people will be able to claim a tax deduction for personal contributions made to their superi.
But while there can be a tax benefit to making a personal tax-deductible contribution to your super, it’s worth remembering that you’re then generally not able to access the money you put into your super until your retirement.
In order to benefit from the change, there are some steps you need to take – in order – so it’s worth considering your position ahead of the end of the financial year. If you’d like to benefit from a tax deduction on a personal super contribution, in the following order, you’ll need to:
There are a few extra considerations to keep in mind. These include:
Speak to us to determine whether claiming a tax deduction on personal super contributions is the best strategy for your circumstances.
i ASFA, New super rules to benefit more than four million Australians, 2017, paragraph 7.
© AMP Life Limited. First published April 2018