The major changes to superannuation announced in November 2016 don’t just affect the top end of town. From 1 July 2017 persons who are on a salary can now contribute to super using after tax money and claim a tax deduction. This means you may have a new avenue to reduce your tax significantly. How do the new rules work? Let’s use our test case, John Smith, aged 50, earning a salary of $80,000 + 9.5% compulsory superannuation.
Analysis of John’s current salary package ignoring Medicare levy:
| Salary | Super | |
| Earnings | 80,000 | 7,600 |
| Less income tax | 17,547 | – |
| Less Superannuation entry tax | – | 1,140 |
| Total Tax paid | $18,687 |
After a call to Lister Mason, John decides to make a contribution to super of $10,000 using his after tax dollars. John’s revised salary package from 1 July 2017 (still ignoring Medicare levy):
| Salary | Super | |
| Earnings | 70,000* | 17,600* |
| Less income tax | 14,297 | – |
| Less Superannuation entry tax | – | 2,640 |
| Total Tax paid | $16,937 |
| Total Tax paid | $16,937 |
| Net Tax Benefit to John | $ 1,750 |
*taxable income post $10,000 contribution to super and $10,000 increased contributions to super The above arrangement provides John with an overall tax benefit of $1,750. It also means John will receive a tax refund of $3,250 on lodgement of his 2018 individual income tax return. In John’s situation, he is not able to access his superannuation until he reaches the age of 60, so while he enjoys an immediate income tax benefit he must wait to access his superannuation benefits.
Of course the same benefit is achieved through salary sacrifice arrangements. The new rules provide more flexibility in your super arrangements and can really help you where you might have income from sources other than wages or have incurred taxable capital gains.
This is the first in series of articles on super changes from 1 July 2017. Future articles will look at the salary sacrifice and ‘banking’ your unused super contributions.
Naturally if you wish to discuss your existing super arrangements for the coming year, please contact our office.
This article appeared in our May 2017 newsletter.
