Personal Super Contributions 10% Rule Removed – How do you benefit?

With the end of the financial year fast approaching, it’s time to start thinking about income tax deductions – especially in light of some important ATO changes.

Effective 1 July 2017, the 10% maximum earnings condition for personal superannuation contributions was removed for the 2017-18 and future financial years.

This repeal of the personal super contributions 10% rule could benefit you – but how? Who has the most to gain and what do you need to do to prepare for it?

What was the personal super contributions 10% rule – and how might the change benefit you?

This rule provided that an individual must have earned less than 10% of their income from their employment-related activities to be able to deduct a personal contribution.

The enacted change ensures that individuals receiving employment income are not dependant on whether their employers offer salary sacrifice arrangements.

Self-employed individuals and those in receipt of passive income can make deductible personal contributions regardless of the amount of salary or wages they earn.

This means that most individuals under the age of 75 can now claim a tax deduction for personal contributions to their self-managed super fund (including those aged 65 to 74 who meet the work test).

What you need to do next…

Before the end of the financial year you need to:

  • Review if you have income available to contribute to your SMSF;
  • Review your total concessional contributions to ensure that they are below the annual cap of $25,000; and
  • Review any current salary sacrifice arrangement you may have to see whether it is necessary and beneficial.

To be eligible for the deduction, you need to provide a valid notice of intention to deduct and have received acknowledgement of this notice from the fund.

Splitting amounts to your spouse

If you are planning to split all or part of your personal contributions with your spouse, you should first provide your trustee with a notice of intent to claim a deduction.

If your trustee has accepted your application to split your contributions before you have provided your trustee with a notice of intent to claim a deduction you will be unable to claim a tax deduction as the contributions have left your super account.

This change may require you to adjust your contribution strategies going forward.

This will most likely be the case if you are under 75 and the previous 10% rule prohibited you from making personal superannuation contributions.

Help is at hand…

Specialist SMSF advisors can help ensure that you are maximising your personal superannuation contributions, based on your specific circumstances and those of your fund.

Please feel free to give me a call on (02) 4908 0400 to arrange a time to discuss your exact requirements – but don’t leave it too late with the end of the financial year approaching!

To keep up to date with the latest changes to super, visit the SMSF Association’s Trustee Knowledge Centre.