With the end of the financial year fast approaching, it is the perfect time to start thinking about your income tax deductions.
Under the new Government changes to super, effective 1 July 2017, the 10% maximum earnings condition for personal superannuation contributions was removed for the 2017-18 and future financial years.
This rule provided that an individual must have earned less than 10% of their income from their employment related activities to be able to deduct a personal contribution.
This change ensures that individuals receiving employment income are not dependant on whether their employers offer salary sacrifice arrangements. Self-employed individuals and individuals in receipt of passive income can make deductible personal contributions regardless of the amount of salary or wages they earn.
This means most individuals under 75 years of age can now claim a tax deduction for personal contributions to their SMSF (including those aged 65 to 74 who meet the work test).
Before the end of the financial year you should:
- Review if you have income available to contribute to your SMSF.
- Review your total concessional contributions to ensure they are below the annual cap of $25,000.
- Review any current salary sacrifice arrangement you may have for its necessity and benefits.
To be eligible for the deduction, you need to provide a valid notice of intention to deduct and have received acknowledgement of this notice from your fund.
Splitting amounts to your spouse
If you are planning to split all or part of your personal contributions with your spouse, you should give your trustee the notice of intent to claim a deduction first.
If your trustee has accepted your application to split your contributions, they cannot accept the notice to claim a deduction.
What to do now?
This change may require you to adjust your contribution strategies going forward.
This will most likely be the case if you are under 75 and the previous 10% rule prohibited you from making personal superannuation contributions.
Seek advice from an SMSF Specialist
It is important to seek the advice of an SMSF Specialist in order to assist you in maximising your personal superannuation contributions, in the lead up to the end of the financial year, based on your specific circumstances and those of your fund. To find your nearest SMSF Specialist, use our Find a Specialist function.
Disclaimer: The information contained in this document is provided for educational purposes only, is general in nature and is prepared without taking into account particular objective, financial circumstances, legal and tax issues and needs. The information provided in this article is not a substitute for legal, tax and financial product advice. Before making any decision based on this information, you should assess its relevance to your individual circumstances. While SMSF Association believes that the information provided in this article is accurate, no warranty is given as to its accuracy and persons who rely on this information do so at their own risk. The information provided in this bulletin is not considered financial product advice for the purposes of the Corporations Act 2001.