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A Melbourne tax accountant explains 10% rule on tax-deductible super

Published On: July 11, 2018Categories: Accounting

The end of the financial year means one thing: tax time.

As Melbourne tax accountants, EOFY is the busiest time of year for us. We’re rushing around, calculating tax obligations, offsets, deductions… the list goes on.

We have to scour through a mountain of records to get an accurate picture of your tax obligation. One such record is your superannuation contributions.

As with any other government program, Australians see frequent changes to the super program. One such reform occurred in the 2016-17 budget and came into effect the 2017-18 financial year.

We are, of course, talking about the removal of the 10% rule for superannuation contribution deduction, and how this will impact you when you fill out your tax returns.

Did you miss this change when it happened? Unsure how it affects you?

Melbourne tax accountant

What’s the 10% rule?

But first, some background.

As most of us know, there are two types of super contributions:

Non-concessional (mandatory)
Concessional (voluntary)

Everybody makes non-concessional super contributions, and many of us make personal, voluntary contributions as well.

What fewer people know is that in some circumstances, voluntary super contributions were eligible for a tax deduction. Prior to July 2017, individuals were only eligible to receive a tax deduction on their voluntary super contributions if they met a set of criteria.

Chief among them, the 10% rule.

Simply put, the 10% rule applies when salary and wages account for less than 10% of total income.

Was only 10% of your income from salary or wages? If so, you were eligible for a tax deduction. If not, you were out of luck.

In practice, as most workers are on salaries, it wasn’t relevant to most Aussies. People who benefitted from this system included:

Business owners
Individuals with investments as their primary revenue
Individuals with multiple revenue streams

Less taxable income, more money in your pocket

If you’re paid a salary or wages, the implications of this are huge. Now, all voluntary super contributions are now tax deductible.

With the 10% rule gone, the doors to a tax refund are open to many more everyday Australians.

That means the majority of people under the age of 75 can claim a tax deduction for voluntary super contributions!

Of course, just because the 10% rule has been removed, you still need to follow the other rules:

Meet the age restrictions
Pass a work test (if you’re approaching 75)
Notify your fund in writing
Have your fund acknowledge your intent

Additionally, members of public sector super funds and funds that explicitly treat member contributions as non-deductible are ineligible for deductions.

Prior to this change, the only way for employees to claim a tax deduction was only possible under a salary packaging or sacrifice agreement.

Instead of receiving your salary in full, you would be provided with benefits of equal value – in this case, superannuation contributions.

Not all employers would agree to such a scheme however.

Workers hoping to put more money in their pockets would be at the mercy of their employers… not to mention, it was just a pain for workers to negotiate!