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Superannuation Rules

The Contribution Eligibility Rules

The introduction of Part 7 into the Superannuation Industry Supervision (SIS) rules changed the face of super forever. Whilst previously only employed persons, or recently employed persons could contribute to super, we now have rules where virtually everyone can contribute to super up until at least age 65, perhaps 70.

So in effect the nexus between work and contributions has been broken. Importantly at this stage there is no limit on the amount of contributions that can be made into super.... only the amount of rebates and deductions which may be claimed.

The following answers summarise the broad eligibility conditions for contributions:

  • Situation Eligibility to Contribute
  • Contribution is an Award or Super Guarantee (SG) contribution – Yes
  • Person is aged less than 65 and is gainfully employed for:
    • More than 10 hours per week – Yes
    • Less than 10 hours per week – No
  • Person is aged 65 or over (but less than 70) and gainfully employed for:
    • More than 10 hours per week – Yes
    • Less than 10 hours per week – No
    • Person is aged over 70 (retired or gainfully employed) – No
  • Person is retired and:
    • Is less than 65 years of age – Yes
    • Is aged between 65 and 70 years of age – No
  • Person is an "eligible spouse" for spouse contributions – Yes
  • Person terminated employment on the grounds of ill-health – Yes
  • Person is on authorised parental leave – Yes

Now that we have established some of the basics, what are some classes of people for whom contributions can be made?

 

Retirees

Any retiree under age 65 who has engaged in part-time employment in the last two years can make a contribution to super. For those 65-70, they must be working 10 hours in any week that the contribution is made. Remember, the contribution does not have to be in cash (check the trust deed), ie. it may be in the form of an asset, such as shares.

Provided person has within two years immediately prior to the contribution being made worked more than 10 hours in any week. A contribution can be made to a regulated fund.

Means ceased gainful employment with no intention of resuming future gainful employment.

The spouse receiving contributions must be under age 65 when the contributions are made, and be living with the contributing spouse. The contributing spouse must be a taxpayer (not necessarily paying tax).

Provided under age 65 and still unable to work in similar occupation.

Must be under 65 and on authorised leave for less than 7 years from employer, and have a statutory or contractual right to return to work or super fund is a fund of which the employer is a standard employer-sponsor.

 

Spouses

Spouses can make personal contributions for each other provided that the contribution is made for a person under age 65, and the contributor is a taxpayer (not necessarily paying tax).

 

Children

There are no restrictions in the SIS Regulations in respect of contributions for children, providing they satisfy the I O-hour per week rule and are eligible employees.

 

Charity Workers

Although not generally deemed to be gainfully employed, a close inspection of the contribution rules may allow contributions to be made. Remember, gainful employment is employment for reward or recompense – the reward or recompense does not have to be cash, it can be such things as free meals, private use of a motor vehicle etc. Documentation in this instance is vital.

 

Professional Investors (eg: Share Traders)

It is possible for these people to be classified as self-employed, however strict tests must be met. There is sufficient case law here for a determination to be made in almost all cases, however in practice very few so-called professional investors are generally allowed superannuation contributions.

 

Invalids (termination due to ill-health)

The invalid rules let an invalid make a contribution up to normal retirement age (generally age 65) to super provided that they became disabled at a time when they were working. A further consideration is that they could no longer carry out the same type of work that they were doing at the time they became disabled.

 

Parents on Leave

A person may contribute into super up to 7 years after they have left employment on the proviso that they have ceased employment due to parental leave and their employer has contractually agreed to re-employ them again once the leave has ceased.

In summary, you can appreciate that there is considerable scope for contributions to be made for almost everyone.

 

But when are the contributions deductible?

You may be surprised to realise that in most cases above, provided the clients make the contributions themselves, then a tax deduction may be allowed.

In this regard, Section 82AAT of the Income Tax Assessment Act (ITAA) is the relevant section to consider. Specifically, the section allows a tax deduction to be claimed where:

  • the contribution is made to a complying superannuation fund;
  • the person is an eligible person;
  • the contribution was made in order to obtain superannuation benefits for the person or for a dependent of the person in the event of the person's death;
  • the first $3,000 is tax deductible with the remaining 75% of any contribution deductible up to the age based limits. currently:
    • Under 35 - $10,600
    • 35 to 50 - $29,443
    • Over 50 - $73,019

 

Who is an Eligible Person?

Firstly, it includes the self-employed. However, the definition extends beyond this to most taxpayers who are not working during the income year, and where the spouse has not contributed on their behalf during the income year.

In that regard, all clients are eligible except for those who have received superannuation support during the year.

This is very important to understand, as it means that there is significant scope for proper and efficient tax planning for clients.

 

What can this deduction be offset against?

Whilst this question is wide open, the following are generally the more common forms of assessable income which may be useful as an offset:

  • Capital gains
  • Rental income from a property investment
  • Interest income
  • Dividend income
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