Knowing cap position can help you get ahead
RECENTLY I wrote that anybody making additional contributions to a Public Sector Superannuation-defined benefit fund would be able to claim a tax deduction for additional personal contributions up to the cap after June 30.
A reader emailed me to say that he had checked the ATO website and it appeared to say that members of defined benefit funds would not be able to claim a tax deduction for additional contributions after June 30. He asked me for clarification.
It is somewhat complicated.
From July 1 this year, the government will allow all Australians under 75 who make personal contributions (including those aged 65 to 74 who meet the work test) to claim an income tax deduction for any personal superannuation contribution into an eligible superannuation fund.
These amounts will count towards the individual's concessional contributions cap, and be subject to 15% contributions tax.
However, members of many defined benefit funds, including PSS, will not be allowed to claim a tax deduction for any additional contributions to that fund.
But they will still be able to make a personal contribution to a separate accumulation fund and claim a tax deduction provided they stay under the $25,000 cap.
The complex bit is working out if they have any unused cap available - this information can come only from their defined benefit fund.
Obviously, defined members considering making extra superannuation contributions after June 30 will need to ascertain their cap position before making the contribution.
I am told that many defined benefits funds will be placing a cap calculator on their websites.
As I have said previously, the forthcoming ability to make extra superannuation contributions will be a major wealth building tool for older people in the workforce as lack of access should not be an impediment to them.
But it is still complex - and this is why expert advice is needed.
Noel Whittaker is the author of Making Money Made Simple and numerous other books on personal finance. His advice is general in nature and readers should seek their own professional advice before making any financial decisions. Email: firstname.lastname@example.org