Superannuation and taxation are two things that baffle and confuse many people. Many of us feel ill-equipped to keep track of and manage our super but with the help of experts such Super Claims Australia , it’s entirely possible to claim what you are entitled to. Self-education and organisation will also allow you to keep track of your funds and feel confident that they are being effectively managed as you work towards retirement.
Types of Super Contributions
In general terms, two kinds of contributions to superannuation can be made: contributions that are non-concessional (after tax) and concessional contributions which are made before tax. Concessional contributions may include superannuation contributions which are tax deductible, in the event that a deduction is claimed by an individual.
It’s definitely worthwhile finding out (or having your financial adviser inform you) of the concessional contributions for which you are eligible. For example, in the 2013/2014 financial year, an eligible person under the age of 60 years was able to make concessional contributions of up to $25,000. If aged 59 years or older as at 30 June 2013, make concessional contributions of up to $35,000 for the year.
In the 2014/2015 year, concessional contributions of up to $30,000 per year can be made by an eligible person under the age of 50 years. If a person is aged 49 years or older on 30 June 2014, they are able to make concessional contributions of up to $35,000 for the year.
Eligibility to Claim Tax Deductible Super Contributions
1. If you are self-employed (or self-employed to a significant extent) or if you are unemployed (for example a full-time investor or carer of small children), it is possible to claim a tax deduction for the contributions you make to your super. These are treated as concessional contributions.
2. Employees are usually not able to claim a tax deduction for voluntarily-made contributions to their superannuation funds. However, similar tax benefits are available by making salary sacrifice contributions. Also, if you are an employee and are able to fulfil the 10% income test rule (see number 3), it may be possible to receive a tax reduction as a result of making a super contribution.
3. It’s well worth knowing about the 10% income test rule. If your situation sees you receive part of your income as an employee, but less than 10% of your assessable income (plus contributions made through salary sacrifice arrangements, plus reportable fringe benefits) can be attributed to employment as an employee, you may comply with the conditions of the 10% income test rule. While it may sound quite complicated, it’s definitely worth investigating whether you qualify.
4. Within a super fund, all tax deductible super contributions and other contributions of a concessional nature are taxed at a rate of 15%. This means that trying to claim a tax deduction for super contributions may be less tax effective than paying less than 15 cents in the dollar as income tax.
5. It’s very important to ensure that you notify your super fund in writing if you plan to claim a tax deduction for a monetary contribution to your super. You need to provide your super fund with this information before lodging your tax return for the financial year. Alternatively, you should let you super fund know that you plan to claim a tax deduction for a super contribution by the end of the financial year that follows the year that the contribution was made, if this is earlier.
For some people, claiming for deductions through super is a good idea but it’s necessary to understand all of the rules that apply, and very wise to obtain the guidance of a qualified financial professional.
This is an S2 POST.