The golden days of being able to claim large tax deductions for making contributions to a complying superannuation fund are over. Not so many years ago, people could make a tax deductible $100,000 contribution, then the amount reduced to $50,000, then to $35,000 (applicable to 30 June 2017 for people 49 years and over), $30,000 for those under 49 years until 30 June 2017 and then $25,000 for everyone after 1 July 2017.
Yes, the tax deductible limit has reduced to 25% of the limit applying only a handful of years ago. The high deductible limit was to encourage people to contribute to super and not be eligible for the age pension at retirement age; this was a long-term strategy not to have older Australians being a financial burden on the Government in their retirement. That concept has been scrapped with concerns of what the superannuation contributions tax deduction is costing in the short term; after all, the Government can be in office for three years – budgeting for the future/long term age pension demands on future Governments is too far away.
My apologies for the cynicism but for many income earners, the $25,000 tax deductible limit after 1 July 2017 will be inadequate to fund a lifestyle in retirement for which they had hoped. As mentioned in another article recently published in Canberra Tax Advisor, the non-concessional (non-tax deductible) annual limit reduces from $180,000 to $100,000 after 1 July 2017. This further reduces some people’s capacity to build superannuation savings.
While such annual contributions are understandably beyond the average salary and wage earner, people in receipt of inheritances or gifts should not be restrained by these limits to contribute to their retirement savings. If people cannot place such one-off amounts into a superannuation fund, the likelihood is that the amounts will be squandered, although reducing the home mortgage balance is a worthwhile option.
So people have until 30 June 2017 to make superannuation contributions of $30,000 or $35,000 – depending on their age as explained above – before 30 June 2017 after which time, the maximum deductible limit reduces to $25,000.
The same principles apply to people who are on salary sacrificing arrangements. Consideration might be given to increasing additional superannuation contributions, above standard superannuation guarantee payments, to the higher maximum limits available this financial year; they have three months of this financial year to arrange this with their employers. They should also ensure that they instruct their employers to reduce their salary sacrifice contributions after 1 July 2017 to avoid an excess contributions situation in future income years.
This article should be read in conjunction with my recent article in Canberra Tax Advisor on non-concessional superannuation deductions.
Tax and Superannuation Partner
10 March 2017