The removal of the ‘10% rule’ as part of the new changes made to superannuation from 1 July 2017 has made it much easier for individuals to make tax deductible lump sum or irregular payments to super.
Previously the ‘10% Rule’ restricted additional tax-deductible lump sum contributions to super to individuals who were self-employed, un-employed, or whose employment income (income received as an employee) was less than 10% of their overall assessable. This meant that for most other individuals who were paid by an employer, the only way to make additional tax deductible contributions to their superannuation was to make a salary sacrifice arrangement with their employer.
However, with the removal of the ‘10% rule’, most individuals (under age 75) can now choose to make an additional contribution(s) to super and claim a tax deduction regardless of their employment type. Therefore, as part of end of financial year tax planning, or for individuals with sporadic/variable cash flow, you now have greater flexibility make an additional tax deductible contribution.
If you are currently using a salary sacrifice arrangement this can continue (but may need to adjusted for the new $25,000 before tax cap) and may be the preferred option to help budget your cash flow over the year.
Example:
Evelyn is 57, earns $80,000 as an employee, and her employer does not provide a salary sacrifice arrangement. Over the financial year Evelyn saves $7,000 and would like to add this to super to build her retirement savings. Evelyn can now contribute this as a lump sum to super. This results in Evelyn reducing her taxable income to $73,000, and the $7,000 is now taxed at 15% within super rather than at 32.5% in her personal name (a tax saving of $1,225)
Important things to note:
- Additional contributions to super claimed as a tax deduction are included in the $25,000 before-tax (concessional) cap
- If you are nearing 75 years of age, and you wish to claim a tax deduction for super contributions, any super contribution must be made before the 28th day of the month following the month that you turn 75.
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