If you earn most of your income from employment, you may want to make personal deductible contributions – instead of, or in addition to, salary sacrifice.
Since 1 July 2017, employees have been able to claim personal super contributions as a tax deduction.
Like salary sacrifice, personal deductible contributions are generally taxed in the super fund at up to 15%*1, instead of your marginal tax rate of up to 47%*2. Both options can enable you to boost your super balance and reduce your overall tax.
Also both count, along with any superannuation guarantee (SG) contributions you receive from your employer, to the concessional contribution cap. This cap is $25,000*3 in 2018/19 and penalties may apply if you exceed it.
Some key differences are that, with personal deductible contributions:
- you don’t have to enter into an agreement with your employer
- you can contribute using available capital from a range of sources, such as your after-tax pay, your savings, a windfall or the sale of assets
- you can contribute any time in the financial year, either in regular installments, as a lump sum or both, and
- you can easily increase or decrease the amount you contribute in line with your income and expenses.
Claiming the deduction
To claim a personal super contribution as a tax deduction, there are some very important steps you’ll need to follow. First, you’ll need to submit a valid ‘Notice of Intent’ form with your super fund and receive an acknowledgement back from the fund. You also need to make sure this happens before you complete your tax return, start a pension, or withdraw or rollover the money. Otherwise you may not be eligible to claim a deduction for the full amount you want. Other conditions may also apply. For more information, please visit the ATO website at www.ato.gov.au
Personal deductible contributions could be worth considering if:
- your employer doesn’t offer salary sacrifice
- salary sacrifice is available but it reduces other benefits such as SG contributions, holiday pay or leave loading, or
- you want to make a concessional contribution using a bonus or another benefit or entitlement already accrued and you haven’t got the right salary sacrifice arrangement in place.*4
Also, personal deductible contributions might be right for you if you want more control over how much you contribute and when the contributions are made.
Salary sacrifice might, on the other hand, be a better option if you’re not the most disciplined saver. With salary sacrifice, the contributions go straight into super from your pre-tax pay before you get a chance to spend the money.
You could even consider using both these options, so you can combine the discipline of salary sacrifice with the flexibility of personal deductible contributions.
For example, you may want to arrange to sacrifice some of your pre-tax salary each pay period and make a personal deductible contribution at the end of the financial year when your cashflow and tax position is clearer.
*1. Individuals with an income from certain sources above $250,000 pa in 2018/19 will pay an additional 15% tax on concessional super contributions within the cap.
*2. Includes Medicare levy.
*3. Since 1 July 2018, it may be possible to accrue unused concessional contribution cap amounts for up to five years. Accrued unused cap amounts may then be used from 1 July 2019. Conditions apply. See www.ato.gov.au for more information.
*4. This is because an effective salary sacrifice arrangement can only be in respect of benefits or entitlements that you’re yet to accrue.
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