From 1 July this year, if you are an employee, you may now have a choice of two ways to make a tax concession contribution to your super.
Prior to 1 July 2017, if you earned more than 10% of your income from eligible employment, you could not make personal deductible super contributions (PDCs).
These are super contributions that are made personally (not by an employer) which can be claimed as a tax deduction to reduce your taxable income and income tax payable.
This ‘10% income test’ has now been removed and, as a result, it is possible to make PDCs regardless of your employment status.
Like salary sacrifice, they are concessionally taxed in the super fund at a maximum rate of 15% (or 30% to the extent your concessional contributions together with your income exceeds $250,000 in 2017/18).
This new opportunity to make PDCs may appeal if:
Even if you are eligible to make salary sacrifice contributions, you may want to consider switching to making PDCs or opt for a combination of both.
The best approach for you will depend on a range of factors.
For example, you may be better off making PDCs if salary sacrificing reduces your entitlement to other benefits, such as leave loading, holiday pay and Super Guarantee contributions.
Also, with PDCs, the entire contribution can be made (and the deduction amount determined) at the end of the financial year when your cashflow and tax position is clearer.
The flip side is that with salary sacrifice contributions you get the tax benefit at the time the salary sacrifice contributions are made, whereas with PDCs, the deduction isn’t claimed until you file your tax return for the relevant financial year.
Your adviser can help you decide on the strategies that work best for you – so get in touch with them and make an appointment to discuss your needs and situation.
