What New Super Rules Mean to Employees

With the previous super rules, only people who are self-employed or unemployed could claim a tax deduction on the contributions they made to a personal superannuation account. This means only they could save money through this financial feature, but not anymore.

Money saving through tax deductions on super contributions is now for everyone.

In the Federal Budget on 18 May 2018, changes to superannuation were announced. One of these is tax concessions for super contributions made by employees.

Previously, the only tax effective way for employees to get extra money from super is salary sacrificing, which is not always one of the best money-saving tips.

The good news is the second option is now available. From the 2018 financial year onwards, employees can reduce their personal tax by making personal, tax-deductible super contributions. They then have an opportunity to claim up to $25,000 in tax concessions. Make a tax-deductible personal contribution to their super of up to $25,000 and then claim it against assessable income.

For example, “Sarah” earns up to $73,000 and has a net investment income of $2,000 for a total taxable income of $75,000. If she makes a $5,000 contribution to her super account and receives a tax deduction, her tax would look like this:

Personal Tax Return Super Fund Tax Return
$5,000 deduction $5,000 contribution
Saves $1,725 in tax Pays $750 in tax
Tax savings of 35.5% (32.5% marginal rate tax + 2% Medicare levy) 15% Tax payable

Her contribution will be in the superannuation environment where the earnings are taxed at 15% and she will benefit by $975.

Her money-saving opportunity will come from being spared from potentially higher personal marginal rates.

The 30th June 2018 was the cut-off date for employees to make a personal contribution.

Any personal contributions made after 1st July 2017 requires individuals to obtain a ‘notice of intent to claim’ form from the ATO.

Tax concessions for super are not for everyone

If you look at it from a tax perspective, there are benefits to the changes in the super rules. This is especially true if your personal rate of tax is higher than the 15% rate that the super will incur. However, a voluntary personal contribution may affect other aspects of your finances.

Personal liquidity

The money contributed to super cannot be withdrawn easily and used for personal needs. You can only access it during retirement after preservation age, when you turn 65, or when you’re eligible for the First Home Super Saver Scheme. So, it’s a good idea to make sure the contribution you make is not money you will need in the near future.

Concessional contribution cap

Remember that the claim for a tax deduction can only be made to a personal contribution of up $25,000. This covers employer contributions, any amount you salary sacrifice, and personal contributions claimed as a personal super contribution deduction.

Timing of contributions

When did your employer pay the contribution? If it is made in June rather than in July when it is due, it will affect the year in which the contribution is counted towards the contribution cap and when the tax deduction can be claimed. For the deduction to be claimed the same financial year, contributions must be received by the super fund on or before 30th June.

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