Up until 30 June 2017, individuals had to meet the ‘10% rule’ or ‘10% test’ to be eligible for a tax deduction for personal super contributions. This rule meant it was quite hard for employees to get extra money into their super fund for tax purposes, unless their employer was prepared to enter a salary sacrifice arrangement. It could also be challenging for anyone combining self-employment with work as an employee.
What was the 10% rule?
The 10% rule was, as the ATO details, a legal requirement which stipulated that any individual could not claim a tax deduction for personal superannuation contributions if they received 10% or more of the following as an employee:
- assessable income plus
- reportable fringe benefits plus
- total reportable employer superannuation contributions.
The ATO points out that this rule applied even if the employer didn’t make superannuation contributions on behalf of the employee.
Eloise runs her own sole trader business as a baker. Her assessable income for the 2016/17 financial year from the business was $60,000, but she also earned another $15,000 in the year working as employee in a larger bakery.
Eloise was not eligible to claim a tax deduction for her personal super contributions, as the income she received from her employer ($15,000) was 20% of her total income for the financial year ($60,000 + $15,000 = $75,000).
The 10% rule caught many ostensibly self-employed people, especially during the start-up phase or periods of low business activity where they may have picked up extra employed work to supplement their business income.
Why was the 10% rule scrapped?
The 10% rule was removed effective from 1 July 2017 for several reasons. Superannuation lobby groups argued it was unfair to those with out-of-the-ordinary employment arrangements, and created unnecessary red tape in the superannuation system. Both the SMSF Association and the Institute of Chartered Accountants of Australia had fought for a change to the rule as early as 2014, arguing that it no longer made sense in the wake of changes to superannuation made in the 2000s.
The rule was abolished in the May 2017 Federal Budget. Now the ATO notes no such restrictions on individuals looking to make tax-deductible contributions. Regardless of whether they’re employed, self-employed, or a combination of both, most people should be able to claim tax deductions for personal super contributions.
Making contributions to your super can be a prudent move towards securing a comfortable retirement, and it’s important that you’re with the best fund possible. You can compare funds and find the right fund for you with Canstar.
The following table contains details of the superannuation funds rated by Canstar based on someone aged 40-49. This table has been sorted by one-year performance (highest to lowest).
Please note that the performance information shown in the table is for the investment option used by Canstar in rating of the superannuation product.
To view the past performance of all super funds, rated by Canstar, use our comparison tool: