Tax-deductible super contributions: Meeting the 10% income test

Q: I work for myself but I also have a part-time job. I have been told that even though I receive SG from my part-time employer, I can also make tax-deductible super contributions. Is that true? And if it is true, how does it work?

Individuals who are self-employed, or who are not employed, are entitled to claim tax deductions for super contributions. An individual may also be able to claim a tax deduction for super contributions if he or she is substantially not employed, that is, they receive only a small part of his or her income as an employee, and they satisfy the 10 per cent income test rule.

If you are substantially self-employed, or substantially not employed, but also an employee, you can claim a tax deduction for a super contribution when your income as an employee is less than 10 per cent of your total income. The 10% rule is explained in this article.

Note: For the 2016/2017 and 2015/2016 years, the rules explained in this article continue to apply. Taking effect from 1 July 2017 however, the Coalition intends to allow all individuals under the age of 75 to claim tax deductions for personal super contributions, subject to the concessional cap, and taking account of previously-made super contributions for a financial year. Such a measure will assist Australians who may be partly self-employed and partly employed, or individuals who work for employers who don’t accommodate salary sacrificing.

The following text is fairly technical but important if this special exception applies to your circumstances.

Total income for the purposes of the 10 per cent rule is assessable income (gross income before tax deductions) plus salary sacrifice contributions (also known as reportable employer super contributions) plus reportable fringe benefits. You’re eligible to make tax-deductible super contributions when your employment income is less than 10% of your total income. Note that Superannuation Guarantee contributions do not count towards total income or employment income.

So, what then is assessable income?

Assessable income is gross income before any deductions are allowed, and includes salary and wages, dividends, interest distributions from partnerships or trusts, business income (including personal services income), rent, foreign source income, net capital gains and a few other items. Reportable employer super contributions (salary sacrifice contributions) are also added back to assessable income when working out whether an individual satisfies the 10% test.

I explain the rules for tax-deductible super contributions in more detail in the SuperGuide article Who can make tax-deductible super contributions?

I suggest you chat to a registered tax agent, typically an accountant to determine the best tax strategy for your circumstances.

Background: Quoting directly from the ATO website:

You may be able to claim a deduction for personal contributions even if you receive some income as an employee.

You cannot claim a deduction if, during the income year, you obtained 10% or more of the total of the following as an employee:

This is the case regardless of whether your employer has paid super on your behalf.

Example 1: The 10% salary and wages threshold

Bob runs a business as a promoter. During the 2006-07 income year, he earned $70,000 assessable income from his business.

He also worked as an employee for another promoter, where he earned $6,500 before tax.

Bob is eligible to claim a deduction for his personal super contributions, as the income from his employment with the other promoter ($6,500) is less than 10% of his combined assessable income, reportable fringe benefits and reportable employer super contributions ($76,500 x 10% = $7,650).

Source: ATO

Note: your age may matter when claiming a deduction

If you are under, or over, a certain age, you may not be able to make super contributions, or make tax-deductible super contributions:

  • If you are nearing 75 years of age, and you wish to claim a tax deduction for super contributions, note that any super contribution must be made before the 28thday of the month following the month that you turn 75. Apart from this specific situation, individuals aged 75 or over cannot make super contributions.
  • If you are under 18 years of age at the end of the financial year in which you made a super contribution, then you can only claim a tax deduction for that super contribution if you earned income as an employee or by running a business during that same financial year.

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