The Following Article was written by Hudson member Monica Rule, an SMSF specialist and author of The Self-Managed Super Handbook.
The looming reforms to superannuation on July 1 have received a torrent of negative publicity.
But are you aware that some of the government’s proposed super changes could provide you with tax deductions, offsets and bonuses on your super contributions? Many of these benefits are modest, but nonetheless an investor should never miss an opportunity.
If you are under 75 and self-employed, or you do not receive any super support from anyone (e.g. you are a retiree), or you receive employment income which is less than 10 per cent of your total income, then you can claim a deduction on your super contributions.
Unfortunately, under the current law, full-time employees are unable to claim a tax deduction on their contributions unless their employment income is less than 10 per cent of their total income.
However, the government proposes to remove the 10 per cent rule so that everyone will be able to claim a tax deduction on their contributions. If the proposed change becomes law, it means from July 1 anyone who is eligible to make concessional contributions of up to $25,000 per year can claim a tax deduction on their contributions.
The government also proposes that, from July I, 2018, people will be able to use the “catch-up” concessional contributions cap. Under the catch-up rules, superannuation fund members will be able to contribute more than the annual concessional contributions cap of $25,000, if they haven’t fully used the cap in the previous five consecutive years, and their superannuation balance does not exceed $500,000.
This means an individual can make concessional contributions in a single year of up to the $25,000 plus any carried-forward amount they have available from the past five years, starting from July 1, 2018, and claim the tax deduction on the entire amount contributed. The carried-forward amounts will expire if they remain unused after five years.
Individuals with an adjusted taxable income of up to $37,000 per year who have personal or employer concessional contributions made into their superannuation fund will receive a tax offset of up to $500. The (low income) tax offset represents a refund of the tax paid on concessional contributions made into the superannuation fund. The tax offset is calculated at 15 per cent of the concessional contributions made into the fund. The maximum tax offset claimable in a financial year is limited to $500 and the minimum amount is rounded to $10.
To qualify, the person must receive at least 10 per cent of their total income from employment or from running a business and they must not hold a temporary residence visa.
Separately, an individual can claim a tax offset of up to $540 for making super contributions for their low-income spouse. The tax offset is calculated at 18 per cent of the maximum $3000 non-concessional contribution. To be eligible for the full tax offset, the low-income spouse’s annual income must not exceed $10,800. The tax offset gradually reduces once the spouse’s income exceeds $10,800 and cuts out altogether once the income reaches $13,800.
To be eligible, the spouse receiving the contribution must be under the age of 70 and if they are aged 65 to 69 they must meet the work test (40 hours over 30 consecutive days). Both the contributing spouse and the low-income spouse must be Australian residents for income tax purposes and not be living separately and apart on a permanent basis at the time the contribution is made. Contributions made on behalf of the spouse will count towards the receiving spouse’s non-concessional contributions cap. Contributions that are split into a spouse’s superannuation account do not qualify for the tax offset.
From July 1 next year, the government proposes to increase the receiving spouse’s income threshold from $10,800 to $37,000 and increase the cut-off threshold from $13,800 to $40,000.
Individuals up to the age of 70, who have made non-concessional contributions into their superannuation fund, will receive up to a $500 bonus superannuation contribution if their income does not exceed $51,021 per annum. The government will contribute 50c for each dollar an individual contributes in non-concessional contributions up to $1000.