6 September 2017
The Good, the Bad and the Ugly
The Good News: Changes to the 10% Income Test Rule
You can maximise your tax refund by making personal superannuation contributions
by June 30 each year and claiming it as a tax deduction. The rules for 2017 for
personal superannuation contributions have changed so please read the following
for an update.
Prior to 1 July 2017, you had to meet the ‘10% income test rule’ to claim personal voluntary superannuation contributions as a tax deduction. In other words, your employment income had to make up less than 10% of your total assessable income. Generally, you could only access this tax benefit if you were substantially self-employed.
From 1 July 2017, the ATO has withdrawn the 10% income test rule, allowing all individuals (including employees) to access these same tax benefits.
To be eligible:
you must meet the age restrictions
you must notify your fund of the amount you intend to claim as a deduction
the fund has received the amount before 30 June 2018
your fund has acknowledged your notice of intent to claim a deduction.
The Bad News: Changes to Contribution Caps
While there is no limit on the amount of super contributions you can claim as a deduction, there are, however, concessional contribution caps on the amount of super contributions you can make before you pay extra tax.
The cap was recently reduced to $25,000 and includes salary sacrificed super amounts, and super guarantee paid by your employer.
At the end of the financial year, the ATO will use your lodged tax return, along with information supplied by your superannuation fund to determine whether you have exceeded your cap. It is therefore important to check either your superannuation statements or payslips throughout the year to ensure any extra personal super contributions (that you intend to claim deduction for) will not exceed the cap.
The Ugly News: Div 293 Tax
Are you going to be earning over $250,000 this year? If so, you may be liable for the Div 293 tax.
It is important to note that ‘income’ for the purposes of Div 293 tax, is calculated as the total of:
Taxable income (assessable income less any deductions)
Employer and personal superannuation concessional contribution amounts (known as low-tax contributions)
Total reportable fringe benefit amounts
Net financial investment loss
Net rental investment loss
Amounts on which family trust distributions tax have been paid
Super lump sum tax elements with zero tax rate
So while you may not usually exceed the $250,000 income figure, sometimes an unusual circumstance may tip you over the threshold. For example, if you receive a redundancy payout, or an inheritance from a superannuation payout.
How is Div 293 calculated?
Div 293 tax is an extra 15% tax on the lesser of:
The total income amount above the $250,000 threshold or;
The total low tax contributions
When is Div 293 calculated?
Div 293 tax is not assessed at the time of lodging your tax return. The ATO uses the information from your lodged tax return, along with the information reported from your superannuation funds, to assess whether you are liable for Div 293.
If you are liable for Div 293, you will receive an amended Notice of Assessment from the ATO advising a payable amount, often months after you have lodged your tax return.
The good news is the extra tax payable can be paid from your super fund, rather than out of your own pocket. You will need to submit a release authority form to your super fund to arrange the payment.