Deductible contributions to superannuation: a change for employees, including VMOs

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Until recently employees who received ‘employer sponsored super’ could not claim a tax deduction if they made additional contributions themselves. If they wished to make higher contributions than what the employer paid, they had to enter into a salary sacrifice arrangement with their employer. The only exception being, if their income derived from employment was less than 10% of their total income.

For many doctors who are employed by a hospital making such arrangements often proved to be difficult and inflexible. Doctors practising through a VMO contract (if sessional) could not make such arrangements at all, although in those instances we could circumvent the problem through the use of a practice trust.

From 1 July 2017 – the current financial year- this has changed and for everyone the rule now is that a tax deduction can be claimed for contributions up to the concessional limit of $25,000 (in aggregate, from all sources), even if you are employed.

This is good news for clients who wish to increase or maximise their super contributions, but haven’t been able to do so because they were employed, either part time of full time, or had a VMO contract in place, and didn’t receive super contributions up to the maximum allowable. They can now make up the difference themselves and claim a tax deduction for this difference on their personal tax return.

A word of warning, actually two words of warning: first, you need to realise that the maximum is $25,000 for all age groups, and therefore make sure you don’t exceed the cap. Timing is important: you will need to ascertain at year end if the last payment due was actually received by the super fund before 30 June. You need to know exactly how much your employer has paid!

The other word of warning is to those who think: ‘I’ll look at that later, when my cash flow has improved’. With the lowering of both the concessional and non-concessional contribution caps it becomes increasingly difficult to catch up later to achieve a meaningful balance in your superannuation fund. Talk to your financial advisor to establish a long-term plan!