Claiming Income Tax Deduction on after Tax Contributions to Superannuation

Eeples on 02/05/2018 - 20:56

Is this correct??

I am a PAYE tax payer with a job.

For the 2017-2018 financial year I can lodge an “intention to claim a tax deduction” form with my Super fund tomorrow. And then I can deposit $25,000 as an after tax contribution in to Super fund and then on my 2017-2018 tax return claim all of it as a tax deduction?

If I do that does 15% of the $25,000 comes out of my Super fund? (And gets paid as tax to the gov’t).

I rang the ato Super phone number this week but I knew more than the person who answered the phone.

Thanks.

Financial Superannuation Tax

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Comments

  • [Deactivated] on 02/05/2018 - 21:13

    Yes. The 15% tax applies to concessional contributions, which includes “contributions that you are allowed as an income tax deduction”

    See here https://www.ato.gov.au/individuals/super/super-and-tax/tax-o…

    But be wary if you go beyond the $25k concessional cap, as I assume your employer is also making SG contributions.

    • Eeples on 02/05/2018 - 21:22

      Okay. Thanks.

      Does that mean that I get earnings on the full $25,000 from the time I pay it into the fund? (ie. The 15% tax doesn’t come out until July 1, 2018).

      (I do understand that the earnings are taxed at 15% too; because the fund is in accumulation phase).

      • [Deactivated] on 02/05/2018 - 21:29

        No. You contribute $25,000, 15% gets taken away for tax, so $21,250 is in your member account. Investment earnings are applied to that balance. Investment earnings are applied on an after tax basis (taxed roughly at 15% give or take some franking dividends).

        The point of the income tax deduction is to effectively give you same treatment as if you were making regular concessional contributions through your employer.

        • Eeples on 02/05/2018 - 21:31

          But as I understand it you can make after tax contributions, then submit the ‘intention to claim a tax deduction’ form…..

          This is what the form says….

          “I declare that I am lodging this notice at the earlier of either: before the end of the day that I lodged my income tax
          return for the income year in which the personal
          contributions were made, or
          before the end of the income year following the year
          in which the contribution was made.
          I declare that the information given on this notice is correct and complete.”

        • bobbified on 02/05/2018 - 21:34
          -1

          @Eeples:
          After-tax contributions are not tax deductible.

        • bobbified on 02/05/2018 - 21:41

          @Eeples:

          My bad! I stand corrected!

          That's what happens when I dont keep up to date with my PS146!

        • [Deactivated] on 02/05/2018 - 21:44

          @Eeples:

          That is the purpose of the notice of intent form. To inform your super fund of the appropriate tax treatment of your contribution. The 15% tax is paid by the fund, not you.

          Whether the 15% tax is applied at the start or end of the financial year makes no difference in the end. It’s like if your multiply both sides of the equation by 0.85. Just cancels out.

        • bobbified on 02/05/2018 - 21:47

          @Okonom:
          That's a really weird way of doing things.

          Do you know what the reason behind the change was?

        • Eeples on 02/05/2018 - 21:49

          @Okonom:

          But, you don’t have to give the intent BEFORE you make the contributions….

          The form says so….

          “I declare that I am lodging this notice at the earlier of either: n before the end of the day that I lodged my income tax
          return for the income year in which the personal
          contributions were made, or
          n before the end of the income year following the year
          in which the contribution was made.
          I declare that the information given on this notice is correct and complete.“

          Am I misreading it?

          Or, are you suggesting that after tax contributions made before the “intent form” notice don’t count?

        • [Deactivated] on 02/05/2018 - 21:50

          @bobbified:

          It’s to make it easier for anyone to make extra concessional contributions, up the the cap

        • bobbified on 02/05/2018 - 22:00

          @Okonom:

          Thanks for that - I don't see it being any different to a salary sacrifice contribution in the end.

          With the only exception being that when someone makes an after-tax contribution, say at the start of the financial year, then the principal amount invested (if the contributor's national tax rate is over 30%) smaller than what it would have been had it been salary sacrificed.

          I could be wrong, but that's my first thoughts. I might do some sums when I get into the office tomorrow. I've moved away from having to need detailed technical knowledge, but this one sounds interesting (sad, I know!) haha

        • Eeples on 03/05/2018 - 00:05

          So, you think that would happen if an Intent to Claim form was lodged….

          I don’t know.

          Certainly, if the form wasn’t lodged yet, then they can’t do that….. (and you would receive earnings on the whole contribution).

        • Shadowsfury on 03/05/2018 - 07:20

          @bobbified: I'm someone that would benefit from the changes. My employer is a bit dodgy (despite being a major global company) and will calculate my required 9.5% on my salary post-salary sacrifice.

          So for example if my salary was $100K including super, I should be getting $8675 in super from the 9.5%.

          If I chose to salary sacrifice an additional $10K, my employer will now calculate my 9.5% off $90K, so I'm out of pocket.

        • Filbert on 05/05/2018 - 05:53

          @Shadowsfury:
          Yep your Employer sucks.
          Been salary sacrificing to the max for a couple of years now with 2 different companies and neither did this. Cheap shot imo.

    • OzFrugie on 03/05/2018 - 21:14

      What happens if u go past 25k? Anything bad?

  • bobbified on 02/05/2018 - 21:29

    deposit $25,000 as an after tax contribution

    If you deposit $25,000 as an after tax contribution, then there is no tax deduction to be claimed on that. After-tax means that you've already paid income tax on that money. When that money gets into your super fund, no further tax applies - ie the 15% tax doesn't apply.

    If you deposit $25,000 as a salary-sacrifice contribution (ie pre-tax), then it your taxable income drops by that amount. Once it gets into the super fund, the 15% contributions tax will be deducted. Salary sacrifice contributions should be arranged with your employer so that they pay it directly to the super fund without deducting income tax.

    Im assuming you haven't hit any of the caps/limits.

    • Eeples on 02/05/2018 - 21:33

      I believe anyone can claim a tax deduction on after tax contributions from 2017-2018.

      Previous to that unemployed or older ppl who passed a working test…. could claim a tax deduction.

      • Cheap Steve on 02/05/2018 - 22:15

        You are correct, this is the first financial year anyone can make personal tax deductible contributions up to the $25k concessional cap.

        Just remember your super guarantee and salary sacrifice contributions count towards the $25k concessional cap and so you should deduct these amounts from your personal tax deductible.

        No tax will initially be deducted from your personal tax deductible contribution, however, once you submit the intention to claim a tax deduction form the super fund will deduct 15% tax. The super fund will then mail you a tax deduction notice that you can claim on your tax return.

  • Eeples on 02/05/2018 - 22:02

    I’m confused.

    I can’t see anywhere where it says that you need to submit the intention to claim form before you start making after tax contributions.

    If true, then the 15% is paid by the fund at the end of the year…. which does mean you do receive earnings on that 15%…

    • Cheap Steve on 02/05/2018 - 22:20

      You're right. You don't have to lodge the intention to claim a tax deduction straight away. However you do need to do it before you lodge your personal tax return or before the end of next financial year eg 30 June 2019.

      The 15% tax won't be deducted by the super fund until they receive your notice to claim a tax deduction.

      • Eeples on 02/05/2018 - 23:59

        Or, when you lodge or 30 June 2019 whichever comes first?

    • [Deactivated] on 02/05/2018 - 22:49

      There is a thing the ATO calls “associated earnings”. These are the investment earnings on amounts that should have been paid to the tax man. These apply for example if you exceed your concessional contribution caps.

      You’re not going to pocket the investment earnings on the 15% that is allocated to the tax man.

      • Eeples on 02/05/2018 - 23:53

        I think I am. But those earnings will be also taxed at 15%.

        Or, are you saying that the earnings on the 15% the super fund is required to pay to the ato. Unlikely.

        There is no reason to believe that those earnings were earned because of any violation of caps or rules.

  • Eeples on 03/05/2018 - 00:02
    -1

    I’ll try ringing the ato super phone number again tomorrow…. at least I know the questions to ask.

    Just hope someone there has the answers.

  • derpdeder on 03/05/2018 - 06:14
    +3

    If you are a PAYG earner, you have most likely had your employer make super guarantee contributions. This comes out of your $25k concessional contribution cap.

    What's more, the super on your June 2017 earnings was most likely paid in July 2017 and counts towards the 2017-18 cap.

    The reason I raise these points is transferring $25k might put you over the cap and you'll have the associated taxes to pay on this. You'll likely have to adjust it down.

    • icejester on 04/05/2018 - 00:33

      Fair point, that makes it very difficult to maximise it to exactly $25000

  • freeo on 03/05/2018 - 08:51
    +1

    Just echoing derpdeder - the $25,000 cap includes superannuation guarantee contributions from your employer. For e.g., if you earn $100,000 plus super and your employer contributes $9,500 in a given financial year, you can only contribute another $15,500.

  • Filbert on 05/05/2018 - 05:50

    Off topic but The thing that annoys the crap out of me is that they on one hand want you to be a self funded Retiree but then reduce the amount you can salary sacrifice (concessional) as the Goverment don't want to lose out on income tax.
    Cmon….how does that work.
    I’m mid 50’s no debt and trying to become self funded as I now have the ability to sock it away and they change the fricken rules.
    Rant over.
    Thank you.

    • Eeples on 05/05/2018 - 07:57

      Yes, it sucks.

      Trying to get to $1 mil super on a concessional limit of 25k when you’re in your 50s is pretty tough (if not impossible unless you are lucky enough to have a predefined benefits super policy).

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