Noel Whittaker's Blog The election is getting close, and we are being bombarded with competing policies – Labor is pushing one which is indefensible. They intend to stop employees claiming a tax deduction for voluntary superannuation contributions.
Until recently people were prohibited from claiming a tax deduction for additional personal concessional contributions if an employer was contributing for them.
The result was the complex 10% rule, introduced to assist doctors who did a small amount of work outside the practice. As the rules stood then, even a small payment from a hospital, from which superannuation had been deducted, denied the doctor the right to claim a tax deduction for contributions made from their main source of income.
So the government created the 10% rule, which allowed people to claim a tax deduction for their own contributions provided their external income represented no more than 10% of their gross income.
The system became inequitable. A sole trader could make additional personal contributions and claim a tax deduction, but their employees could not. There was a loophole if their employer was prepared to offer salary sacrifice, enabling their employees to contribute part of their gross pay as an additional superannuation contribution.
Even if you were one of the lucky employees with access to salary sacrifice, you could still find yourself with problems. Some unscrupulous employers took the opportunity to treat the extra salary sacrifice contributions as part of their 9.5% compulsory superannuation obligation, conning their employees by reducing their compulsory contribution.
But generally, the outcome was that employees of companies that offered salary sacrifice were better off than those working for businesses where it was not offered.
Finally, thanks to the Coalition government, all taxpayers were given equality. From 1 July 2017 everybody has had the opportunity to make additional superannuation contributions up to the concessional limit of $25,000 a year (including employer contributions) and claim a tax deduction.
Now Labor, despite always rattling on about inequality, and claiming to be the champion of women, is threatening to reverse this long overdue and essential changes to the rules. They want to bring back the 10% rule, and revert to a system in which certain privileged employees got an effective tax deduction through salary sacrifice while less fortunate ones missed out. Where is the logic in that?
Maybe there’s a hint on the Labor website, which points out that only 2.3% of taxpayers made $25,000 or more of concessional contributions in 2012–13. But that’s not relevant. The new rules allowing all employees to make concessional contributions only took effect from July 2017. Before then, most employees were prohibited from making additional tax-deductible contributions – so of course there were very few extra deductible contributions! It’s a flawed proposal, based on flawed logic.