Tax Deduction for 25k Super Contribution

Posted On: Thursday, February 28, 2019

 Part (1) - The Client is 66years old, has made a concessional contribution by way of salary sacrifice to a defined benefit fund since 1/7/2017: $25,000.

The question:

Is he entitled to get a tax deduction up to $25,000 in the year 2018 income tax? If so, what is the negative effect on his retirement in the near future.

The Fund taxed his contribution 15% ($25,000-$3,750) = $21,250.

Answer – Part (1)

Firstly, as your client is over 65, it is necessary that the “work test” be met in order for a contribution to be made.

If so the client is entitled to a tax deduction but first, consider whether the client needs a tax deduction.

Some or part of this could be characterised as a non-concessional contribution without the need to pay the 15% tax.

You appear to be indicating that the client has already contributed the $25k – so regarding the negative affect on retirement?

Here we assume that you are referring to pension entitlements and we would advise that superannuation fund assets (asset test) and pension streams (income test) are taken into account by Centrelink when considering eligibility for the age pension.

Part (2) - Thank you very much for your response.

The client met work test and asset test and income test, and getting small amount of prorate age pension:

The question is that:

Concessional contribution to defined benefit super fund entitles him to a tax deduction and,this deduction has a negative effect on his prorate age pension.

If so, can client complete Notice of Intent to claim deduction for personal super contributions.?

Answer – Part (2)

In the year ending 30 June 2018 your client can claim $25k as a tax deduction as you advise he has met the work test.

We assume he will have other assessable income that makes the claiming of the $25k as a tax deduction tax effective.

Also, that he has no employer support – kindly note that $25k is the total limit that includes individual AND employer contributions.

As his tax adviser you will be doing these sums close to the end of the financial year when you have an overview of the situation.

It may be that it is tax effective to claim only a portion of the payment as a tax deduction… and the fund manager should be advised accordingly.

But as you point out…. there are two issues being the tax saving and the effect on the pension.

Regarding whether the super contribution can reduce income for the pension.

The Dept of Human Services website indicates that they look at income only.

For rental property owners and business owners they look at the concept of net income.

So, if your client operates a business it would indicate that a tax deduction could be claimed for eligible super up to the amount that would make net income nil.

If it were wage or investment income he derived, we suggest that would be another matter i.e. the super deduction would not be taken into account for the pension income test.

We stress that this is our interpretation and that you or client could well hold another view.

Confirmation could be sought from the Dept of Human Services.

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