Personal superannuation contributions were introduced into the system a couple of years ago as a simple way for people to top up their super and claim a tax deduction. They complement super guarantee contributions, salary sacrifice arrangements and non-concessional contributions.
While the scheme was designed to be simple, there are a couple of wrinkles that fund members need to be aware of before they make a personal contribution.
AMP technical strategy manager John Perri says anyone who wants to make a personal contribution needs to get a “notice of intent” from their super fund, and then submit it to the fund when they make the contributions. SMSFs trustees can get the notice from the Australian Taxation Office website.
If there is no notice of intent the ATO will not allow a deduction. In technical terms, the contribution will be treated as non-concessional, rather than concessional.
Perri says there is no deadline for lodging the notice but it should be submitted before a tax return is lodged. That is because the ATO will check the notice before allowing the deduction.
Perri says it is also important to check payslips to see how much super has been contributed by your employer. For a fund member to be able to claim a deduction, the total of super guarantee, salary sacrifice and personal contributions must be under the $25,000 concessional cap.
Perri says interest in personal super contributions has been a “slow burn” but judging by calls to AMP and feedback from advisers, interest is picking up.
If the fund member earns under $250,000, the contribution is taxed at 15 per cent (30 per cent for people earning $250,000 or more). The fund will withhold the 15 per cent (or 30 per cent) tax on the contribution.
When a fund member completes their tax return, deductions reduce taxable income. In effect, the deduction will be the difference between the personal marginal income tax rate and 15 per cent.
Personal super contributions could also be used to offset capital gains tax, by contributing the proceeds from the sale of an asset.
People aged over 65 need to pass a work test before being able to make voluntary super contributions. They must have been gainfully employed during the financial year for at least 40 hours over a period of no more than 30 consecutive days.
Downsizing contributions are not deductible.
A fund member who claims a deduction or a personal contribution may be eligible for a low income superannuation tax offset on the tax paid on the contribution. But they will not be eligible for a super co-contribution on the amount.