New tax rules open opportunities to top up super

The Australian, March 6, 2018
With recent focus on new limitations on super, it’s easy to forget there is at least one new rule that helps those still saving to put more into their super with the best possible tax treatment.

Until this year, there were really only two ways for most people to voluntarily make extra superannuation contributions.

The first was to ask an employer to divert some of their salary to their fund as extra super (known as “salary sacrifice” contributions). This is valuable for those on high rates of personal tax because they escape income tax on the money used to make salary sacrifice contributions.

The second method was to put in extra money as what’s called a “non-concessional” contribution. Non-concessional contributions are not tax deductible. If there’s no tax deduction available, most people opt for paying down their mortgage rather than putting more into super.

In the past, very few individuals could make a superannuation contribution for which they claimed a personal tax deduction. Those who could were typically people running a business in their own name or not working at all — it was rarely possible for a traditional salary earner.

That’s all changed from July 1 last year when new rules administered by the Minister for Revenue and Financial Services, Kelly O’Dwyer, came into force.

These days, anyone can claim a tax deduction for contributions they make to superannuation from their own money. There is a limit of $25,000 a year and unfortunately any contributions made by an employer will also use up the limit. But the new rule does open up opportunities.

Have you ever thought about salary sacrifice contributions and then decided it’s all too hard because you have to make regular payments and commit to them in advance? (And then of course there is the hassle of changing your instructions with your company’s payroll department if you change your mind.)

Have you ever received a bonus and thought afterwards, “I paid a lot of tax on that bonus, I wish I had put some of it into super as an extra salary sacrifice contribution”?

Have you ever reached the end of the financial year with more cash than expected and wondered if there is any way you can contribute it to super and reduce your personal tax bill at the same time?

Do you have an employer who is not able to organise salary sacrifice contributions for you? Or does your employer reduce other salary-based benefits if you deliberately opt for less salary and more super?

If so, it’s time to think differently this financial year because there is now a second path.

In the new world, virtually anyone can decide in (say) June to put an extra deposit into superannuation and claim a personal tax deduction for it.

However, there are some issues to watch:

  • Remember the $25,000 annual limit includes any superannuation provided by an employer such as compulsory (superannuation guarantee) or salary sacrifice contributions. For some funds this amount is not immediately obvious — check carefully with your employer and fund before making the extra contribution;
  • Just like an employer contribution, this extra contribution will be taxed in the fund. For most people the rate is 15 per cent but for some it is as high as 30 per cent (generally for those earning salary, super and other income of more than $250,000 a year);
  • There is paperwork to do. Unlike salary sacrifice contributions, which are automatically tax deductible to an employer, personal contributions are only tax deductible if you specifically ask your fund to treat them that way within certain time frames and the fund agrees to do so;
  • Anyone over 65 must meet certain rules to be able to make superannuation contributions;
  • Claiming a tax deduction for your personal contributions will mean they are potentially taxed again when you eventually take the money out of superannuation. Generally this is only relevant if you take the money out before you turn 60 or under certain circumstances when you die; and
  • It’s not worthwhile for anyone paying little personal income tax (particularly those whose personal tax rates are less than or similar to the normal superannuation rate of 15 per cent).

Of course some people will still choose to use a salary sacrifice arrangement with their employer and make these contributions regularly. There is something simple and comforting about knowing you are adding to your superannuation every fortnight / month without having to do anything to make it happen.

But effectively this new rule allows everyone to have the tax benefits of salary sacrifice contributions with the flexibility of non-concessional contributions.

Meg Heffron is head of SMSF education services at