From 1 July this year, if you are an employee, you may now have a choice of two ways to make concessionally taxed contributions to your super.
Prior to 1 July 2017, if you earned more than 10% of your income from eligible employment, you could not make personal deductible super contributions (PDCs).
These are super contributions that are made personally (not by an employer) which can be claimed as a tax deduction to reduce your taxable income and income tax payable.
This ‘10% income test’ has now been removed and, as a result, it is possible to make PDCs regardless of your employment status.
Like salary sacrifice, they are concessionally taxed in the super fund at a maximum rate of 15% (or 30% to the extent your concessional contributions together with your income exceeds $250,000 in 2017/18).
This new opportunity to make PDCs may appeal if:
- your employer doesn’t offer salary sacrifice
- you receive a bonus or redundancy payment you would like to contribute to super but you don’t have a valid salary sacrifice agreement in place, or
- you are a resident for tax purposes, are working overseas for a foreign employer and your employer can’t or won’t contribute to an Australian super fund.
Even if you are eligible to make salary sacrifice contributions, you may want to consider switching to making PDCs or opt for a combination of both.
The best approach for you will depend on a range of factors.
For example, you may be better off making PDCs if salary sacrificing reduces your entitlement to other benefits, such as leave loading, holiday pay and Super Guarantee contributions.
Also, with PDCs, the entire contribution can be made (and the deduction amount determined) at the end of the financial year when your cashflow and tax position is clearer.
The flip side is that with salary sacrifice contributions you get the tax benefit at the time the salary sacrifice contributions are made, whereas with PDCs, the deduction isn’t claimed until you file your tax return for the relevant financial year.
We can help you decide on the strategies that work best for you – so get in touch (08) 8232 9498 to discuss your needs.
Important information and disclaimer
This publication has been prepared by Wallis-Smith Financial Services Pty Ltd ACN 112 623 613 t/a Wallis-Smith Financial Planning, Sam Wallis-Smith & Victoria Wallis-Smith are authorised representatives of GWM Adviser Services Ltd ABN 96 002 071 749 an Australian Finanmcial Services Licensee with its registered office at 105/153 Miller Street, North Sydney NSW 2060.
Any advice in this publication is of a general nature only and has not been tailored to your personal circumstances. Accordingly, reliance should not be placed on the information contained in this document as the basis for making any financial investment, insurance or other decision. Please seek personal advice prior to acting on this information.
Information in this publication is accurate as at the date of writing (July 2017). In some cases the information has been provided to us by third parties. While it is believed the information is accurate and reliable, the accuracy of that information is not guaranteed in any way.
Opinions constitute our judgement at the time of issue and are subject to change. Neither the Licensee nor any member of the NAB Group, nor their employees or directors give any warranty of accuracy, or accept any responsibility for errors or omissions in this document.
Any general tax information provided in this publication is intended as a guide only and is based on our general understanding of taxation laws. It is not intended to be a substitute for specialised taxation advice or an assessment of your liabilities, obligations or claim entitlements that arise, or could arise, under taxation law, and we recommend you consult with a registered tax agent.