Flexibility to superannuation contributions

Increased flexibility to superannuation contributions

Recent changes in legislation are making it easier to make deductible contributions to superannuation. Previously, in order to claim a deduction for a personal contribution, you had to have less than 10% of your income derived from salary and wages; essentially, this was only available for the self-employed. This was commonly referred to as either the 10% or 90% rule.

The 10% (or 90% rule) has now been removed, making it possible for anyone to make a lump sum contribution to their superannuation and claim a tax deduction. Other rules still apply; you need to be eligible to contribute to superannuation and are restricted by contribution caps.

This provides more flexibility for employees to build wealth for retirement and reduce tax that wasn’t available previously. Under the old provisions, the only method for employees to contribute excess to superannuation was through their employers with salary sacrifice contributions.

This has some limitations, most notably being that not all employers allow salary sacrifice (usually because they don’t have the infrastructure to administer it efficiently). It also requires employees to make regular small contributions to superannuation with no capacity to make lump sum contributions.

There are a number of situations where the ability to make a lump sum deductible contribution is appealing. Those who make a capital gain may be inclined to make a deductible contribution to super to reduce their tax liability as well as build wealth for retirement is one such situation.

For those who make personal contributions to super and would like to claim a deduction, it is necessary to lodge a form stating your intention to claim a tax deduction. Your super fund will provide you with the standard form called a “Notice of Intent”.

There are a few things that need to be considered with this form.  The “Notice of Intent” must be made before you lodge your tax return. Furthermore, if you roll your funds to a new fund or withdraw your funds, your notice to claim a tax deduction will not be valid. This also applies if moving to pension phase. In the event of a partial rollover or withdrawal, you may not be able to claim a full deduction. Partial rollovers to pay for insurance is something to be aware of if you are claiming a deduction for personal contributions and has been known to catch people out in the past.

If you have made a contribution to your superannuation fund that you intend to claim a deduction for, make sure you complete the “Notice of Intent” before making any changes to your superannuation.

This is one of a number of new and proposed changes to superannuation designed to make it easier to get funds into the super system.  We see this as a positive step in the right direction for our clients.

Categories: Future Financial Services Blog

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