Noel Whittaker Sunday Times 11 Dec 2016
The new superannuation rules have been passed, but many are more confused than ever.
One reader says: “It has been widely reported that from July superannuation contributions will be tax deductible to the limit of the concessional amount of $25,000. Does that mean then the salary sacrifice and the tax-deductable contributions fit in with each other? Does one exclude the other?”
It’s a great question, particularly as it highlights the opportunities that will be available for employees after June 30, 2017.
Superannuation contributions fall into two categories: concessional, and non-concessional.
Concessional contributions were once called deductible contributions because they came from pre-tax dollars, while non-concessional contributions were called un-deducted contributions because the funds came from after-tax dollars.
Until July 1, concessional contributions are capped at $30,000 for people under 50, and $35,000 for those aged 50 and over.
Non-concessional contributions are limited to $180,000 a year, but in certain cases [say under age 65] you can bring forward an extra two years’ contributions and contribute $540,000 in one year.
From July 1, the concessional cap will fall to $25,000 a year for everybody, and the non-concessional cap to $100,000. Furthermore, no non-concessional contributions will be allowed once you hold $1.6 million in pension phase.
Obviously, if you have funds available, take advice about making substantial contributions before June 30.
It’s long been a bone of contention that a self-employed person could make a concessional contribution and claim a tax deduction for it, but anybody whose employer was contributing for them was not allowed the same concession.
It was easy to get around for anybody who had a good employer, because the concessional contribution could simply be made by salary sacrifice.
There was no logic in the system, and it created an unequal situation in which an employee who was allowed the salary sacrifice got a better deal from the taxman than an employee who was not offered salary sacrifice.
It has been confirmed that from July 1, everybody who is eligible to contribute can make concessional contributions up to $25,000 a year and claim a tax deduction.
[Note WA State Govt employees in the now closed West State super fund can still contribute above $25,000pa, providing they meet the right conditions].
To be eligible you must be under 65. Contributions are also allowed for those aged between 65 and 75 who can pass the work test, which involves working just 40 hours in 30 consecutive days.
Salary sacrifice will still be allowed, but it will no longer be necessary to get the tax deduction.
Just remember the $25,000 includes the employer 9.5 percent SGC.
So if you earned $100,000 a year, and your employer contributed $9,500 in super, your maximum personal super contribution would only be $15,000.