Make Your Super Contributions Work Harder

Are you making the most of your superannuation contributions or confused by all the recent changes proposed?  We’ve sifted through the changes to bring you details on those that are relevant for medical professionals.  

Most of the changes will come into effect on 1 July 2017 (subject to legislation being passed) so this is an opportune time to make your super contributions work harder!

Tax Deductions on Contributions

Currently those who are predominately self-employed (such as doctors who operate under their own ABN), and earn less than 10% of their income from salary and wages are able to claim a tax deduction for contributions made into their super fund.

Conversely, salary and wage earners who earn the majority of their income through employment, are not eligible to claim a tax deduction for personal super contributions. Salary and wage earners are instead limited to after-tax (non-concessional) contributions or those made through salary sacrifice.  This has always been an issue for those who straddle the public and private system generating income in both spheres.

In a move to provide greater flexibility to make personal tax-deductible super contributions, the government has announced plans to scrap the 10% income from employment test. This will allow anyone, regardless of their source of income (up to the age of 75), to claim a tax deduction for contributions made to their super fund.

How Does this Work?

From 1 July 2017, anyone up to the age of 75 and who is eligible to contribute to super, will be able to claim a deduction for personal contributions made into their super fund.

In order to access the deduction, a Notice of Intent to Claim a Deduction is required to be lodged with your super fund. The super fund may have their own notice available to use, alternatively the Australian Taxation Office (ATO) produces a standard form which is available on their website (Form ID: NAT 71121).

The notice of your intent to claim a deduction should be provided to your super fund, and written confirmation from the super fund acknowledging the intent must also be received prior to lodgment of your income tax return which claims the deduction.

Who Can Contribute to Super?

Anyone under the age of 65 is able to make contributions into their superannuation fund. These may be taxable (concessional) contributions such as employer or personal deductible contributions, or after-tax (non-concessional) contributions.

Between the ages of 65 and 75, a work test needs to be met in each financial year you wish to contribute. The work test consists of 40 hours of paid work in a 30 day period. Once met, you are able to contribute up to your concessional and non concessional contribution caps.

Once over the age of 75, your super fund is able to accept any employer super guarantee contributions, but no further personal contributions or salary sacrificed contributions are allowed.

The amounts that you can contribute to super will depend on your age and balance. The caps for the 2016/2017 and 2017/2018 financial years are as follows;

Deductible (Concessional) Contributions

Income Year Under 50  50 years & over
2017/2018 $25,000 $25,000
2016/2017 $30,000 $35,000

After-Tax (Non-Concessional) Contributions

Income Year Under 65  65 years & over
2016/2017 $180,000 or up to $540,000 if bring forward cap is utilised $180,000
2017/2018 $100,000 or up to $300,000 if bring forward cap is utilised and member balance is below $1.3 million $100,000 f member balance is below $1.6 million

From 1 July 2017, you will only be eligible to make non-concessional contributions where your total superannuation balance is less than $1.6 million. Where your balance is close to $1.6 million, a reduced cap will apply to limit non-concessional contributions that would otherwise increase your balance above $1.6 million.

The reduced cap is dependent on your super balance at 30 June of the prior financial year and will limit non-concessional contributions as follows;

Superannuation Balance at 30 June Non-Concessional Cap (including bring forwad components)
Less than $1.3m 3 Years ($300,000)
$1.3m to < $1.4m 3 Years ($300,000)
$1.4m to < $1.5m 2 Years ($200,000)
$1.5m < $1.6m 1 Year ($100,000)
$1.6m and over Nil

To discuss how the government budget changes will affect you, please contact Sarah Blake of William Buck on (03) 9824 8555 or by email sarah.blake@williambuck.com.

Disclaimer: The contents of this article are in the nature of general comments only, and are not to be used, relied or acted upon without seeking further professional advice.  William Buck accepts no liability for errors or omissions, or for any loss or damage suffered as a result of any personal acting without such advice.  Liability limited by a scheme approved under Professional Standards Legislation.  This information is current as at 8 November 2016, the above changes are subject to legislation being passed which is still in draft form.