What is the Income Test?
The income test is used by the Government to assess if someone is eligible for certain government funded benefits. In terms of superannuation, eligibility for the Government co-contribution and some tax deductions and offsets is calculated using the income test.
How will the changes affect super?
From 1 July 2009, changes to some definitions associated with the income test will mean that salary sacrificed contributions to your super account will be included when assessing your eligibility for these government funded benefits. These changes may mean that some Westscheme members will no longer qualify for the benefits.
Tax deductible personal super contributions
Personal super contributions are “tax deductible” if the individual’s total income from employment as an employee is less than 10% of their total income (assessable income + reportable fringe benefits).
From 1 July 2009, the definition of total income will include any salary sacrificed to your super account. For some members, this change may mean they are no longer eligible to claim a tax deduction for personal super contributions they make.
For example: John is 51 years old, is employed by ABC Corporation and earns $90,000 per year before tax. As John has other personal investment income of $50,000, he is able to salary sacrifice $85,000 into his super. This means his total income is $55,000, with only $5,000 (or 9%) coming from employment. If John makes personal contributions into his super, he can claim them as a tax deduction.
However, from 1 July 2009, the $85,000 that John salary sacrificed is included in his total income. John’s total income will then be $140,000 with $90,000 (or 64%) coming from employment as an employee. If John makes a personal contribution, he will not be eligible to claim it as a tax deduction.
Tax offset for spouse contributions
Currently, an individual who makes personal contributions to their spouse’s super account may be eligible to claim a tax offset of up to $540 per year. The maximum offset decreases by $1.00 for every $1.00 of the spouse’s total income above $10,800, up to $13,800.
From 1 July 2009, the spouse’s total income (assessable income + reportable fringe benefits) will include any salary sacrificed to a super account. For some members, this change will mean they are no longer eligible to claim a tax offset for the contributions they make into their spouse’s account.
For example: Bob contributes $3,000 into Jane’s (his wife) account. Jane earns $32,000 and salary sacrifices $22,000 into her own account. Bob can currently claim the maximum tax offset of $540 as a spouse contributions tax offset because Jane’s income for this purpose is only $10,000.
From 1 July 2009, Jane’s total income will be $32,000 as it will include the salary sacrificed amount. Bob will no longer be eligible to claim a spouse contributions tax offset.
Government co-contribution
During the 2008/09 financial year individuals with total income (total assessable income + reportable fringe benefits) between $30,342 and $60,342 could receive $1.50 for every dollar they pay in personal super contributions, up to a maximum of $1500 (other conditions apply).
From 1 July 2009, the definition of total income will include any salary sacrificed to your super account. As a result, some members will no longer be eligible for the Government co-contribution for the personal contributions they make to their super.
For example: Bill is employed by XYZ Corporation and earns $100,000 per year before tax. He salary sacrifices $80,000 into his super reducing his income to $20,000. Bill also makes personal contributions of $1,000 and receives the Government co-contribution of $1,500.
From 1 July 2009, Bill’s total income will be $100,000. He will no longer be eligible for the Government co-contribution on any personal contributions he makes into his own account.