The concessional contribution cap for deductible super contributions has reduced to $25,000 per year for everybody from 1 July 2017 except for an exemption for people with account balances of less than $500,000 from 1 July 2018 usable in 2020 FY.

Concessional or deductible super contributions are where a tax deduction is claimed for these contributions by either you or your employer.

It is now necessary to review any existing salary sacrifice arrangements to keep your concessional contributions below the $25,000 concessional cap or they will be taxed at your marginal rate of tax with a 15% rebate which is not necessarily a bad result.

Step 1 in maximising your superannuation benefits is to utilise as much of your $25,000 concessional cap each year as possible.

You will get a deduction at your marginal rate of at least 34.5% (including medicare levy) for people with taxable income of at least $37,000 and your contributions will be taxed at 15% inside your super fund. This provides you with at least a 19.5% tax saving for you while building up your superannuation but it will cost you some cash flow.

From 1 July 2017, this becomes easier for employees with the removal of the 10% test where taxpayers were required to have no more than 10% of their assessable income from employment income to claim deductions for super contributions. Now that this test is removed, employees now have the same access to deductible super contributions as business owners.

Salary sacrifice arrangements are still a good option but are no longer the only option for employees in utilising their concessional contribution cap.

Employees can now make personal contributions to super and claim a tax deduction for them. The process is to make personal contributions during the year. Once the financial year is past, you review the amount of your personal contributions, review your individual tax position, decide the amount of contributions you want to claim as a tax deduction, prepare and submit a section 290(170) Notice of Intention to Claim a Deduction Form with your super fund, receive their acknowledgement form, give this form to your tax advisor or keep it for your own records if you lodge personally and claim the amount at label D12 in your individual tax return.

Two conditions in implementing this strategy are, that the section 290(170) Notice acknowledgement from the super fund must be received before the tax return is lodged and before the end of the financial year after the contributions are made.

Example – Fred’s employer contributes $8,000 in super guarantee contributions on his wage while Fred salary sacrifices $5,000 through his employer and makes $10,000 personal super contributions to his super fund in the 2018 Financial Year. Fred notes his concessional cap is $25,000 and reduces this by $8,000 super guarantee contributions and his $5,000 salary sacrifice contributions and is left with $12,000 of his concessional cap remaining. Fred wants to claim a tax deduction for all $10,000 of his personal contributions and lodges a section 290(170) Notice with his super fund. Once he receives their acknowledgement, he claims a tax deduction of $10,000 at label D12 in his individual tax return.

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