Case study 1- Maximising your contributions tax benefits

There are a number of things you can do to manage superannuation contributions to make sure you are getting the most out of your contributions tax deductions and ensuring your employees are getting all the benefits they deserve.

Employers are entitled to tax deductions for super contributions made on behalf of their employees. The current system is based on age-based limits, called Maximum Deductible Contributions (MDCs) which restrict the amount an employer is eligible to receive as a tax deduction. In the Federal Budget 2006, the government announced plans to replace these age-based limits with a universal limit of $50,000 regardless of the employee’s age. See below for more details of the proposed new system.

The amount that can currently be claimed as a tax deduction is based on the age of each employee. The limits for the 2006/07 financial year are:

Age of employee	Maximum deductible limit*
Under 35	$15,260
35 - 49	$42,385
50 and over	$105,113

* Limits for 2006/07, indexed to AWOTE on 1 July each year

These limits apply to all contributions made by an employer for each employee, whether they are compulsory award, superannuation guarantee contributions, salary sacrifice super or employer voluntary super contributions.

The limits are based on an employee's age on the date of the last contribution in the financial year. So employees who turn 35 or 50 during the year will be subject to the higher limits if an employer or salary sacrifice contribution is made after their birthday, but before the end of the financial year. This means you, or your employees (via salary sacrifice) can contribute more to their super accounts while at the same time maintaining your tax deductions.
If your business is part of a group of associated companies, the tax deduction can be claimed by either the direct employer or by one of the associated companies.
The age-based limits restrict only the amount of tax deduction that can be claimed, rather than the actual amount of a super contribution. Therefore, if your business is a charity or non-profit organisation, you could consider allowing your employees to salary sacrifice to super more than their maximum deductible limit.

Federal Budget 2006 proposal: It is proposed to replace the current age-based limits with a universal limit of $50,000 regardless of the employee’s age. Additionally, employers will be able to claim a deduction on contributions in respect of employees up to age 75.

For individuals under age 50, the new universal limit increases the tax deduction the employer is able to receive on a yearly basis. For persons aged 50 and over, the universal limit is less than the amount they are currently able to claim. A transitional period for these people will apply to allow them to make contributions above this new universal limit. From 2007/08 to 2011/12 the limit for persons aged 50 and over will be $100,000. This new limit will return to $50,000 from 2012/13.

Please note the limit for compulsory employer contributions under the Superannuation Guarantee will remain at age 70.

This proposal has not been legislated as yet. If its passed through parliament, it will be effective from 1 July 2007.