As workers head towards retirement, superannuation becomes more of a focus. But it pays to start planning early.
As workers head towards retirement, superannuation becomes more of a focus. But it pays to start planning early. DAN HIMBRECHTS

Super changes encourage personal contributions

Currently, superannuation contributions are a tax deduction to the employer who makes them, but employees who are members of an employer-sponsored superannuation fund cannot claim a tax deduction for their own contributions.

As employers are required to contribute superannuation for most of their employees, it follows that most employees cannot claim a tax deduction for their own contributions.

Thankfully, the laws have been changed with effect from July 1, 2017. From that date you will be able to claim a tax deduction for personal concessional contributions even if an employer is making contributions for you.

Salary sacrifice is still allowed, but it will no longer be necessary to do that to get a tax deduction. Just keep in mind that the $25,000 limit includes contributions from all sources including the employer's 9.5%. Therefore, if you earned $100,000 a year, and your employer contributed $9500, your maximum personal concessional contribution would be $15,500.

Case Study. You are 55, earn $98,000 a year plus employer superannuation of $9310 and have a cash surplus of $15,000 a year.Under the current rules you could invest the money in your own name, where earnings would be taxed at 39%, or contribute it to super as a non-concessional contribution, where the earnings will be taxed at just 15%.  

After June 30 there will be another option - make a concessional contribution of $15,000.

You will lose $2250 due to the 15% contributions tax but will still have $12,750 working for you in the low-tax superannuation environment. Best of all, the tax deduction of $15,000 should get you a tax refund of $5850, which you could contribute as a non-concessional contribution. This option magically turns your $15,000 into $18,600. That's a return of 24% in the first year. 

Just keep in mind that money contributed to superannuation becomes inaccessible until you reach your preservation age.

Noel Whittaker is the author of Making Money Made Simple and numerous other books on personal finance. His advice is general in nature and readers should seek their own professional advice before making any financial decisions. Email: noelwhit@gmail.com.

 



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