Who can make tax-deductible super contributions?

Q: I am self-employed and I have never made super contributions in my life. Am I eligible to make super contributions, and can I claim a tax deduction for those super contributions?

You can make two types of super contributions: non-concessional (after-tax) contributions and concessional (before-tax) contributions. Concessional contributions are also known as tax-deductible super contributions where an individual claims a deduction.

For the 2013/2014 year, an eligible individual can make concessional contributions of up to $25,000 a year if under the age of 60, and up to $35,000 for the year if aged 60 years or over. (For the general rules applicable to concessional contributions see SuperGuide article Super concessional contributions: 2013/2014 survival guide).

If you’re self-employed (or substantially self-employed) or you’re not employed, you can claim a tax deduction for your super contributions, which means these super contributions are treated as concessional contributions. An individual under the age of 18 however can only claim a tax deduction for super contributions when his or her income comes from gainful employment, such as carrying on a business.

Note: If you have never made a super contribution before, then before you can make super contributions you need to choose a super fund that can accept those super contributions. I explain some of the things you need to think about when choosing a super fund in the ‘comparing super funds’ section of the website (see tab at the top of the page).

The rules for claiming tax deductions on super contributions can be complex depending on the type of work that you do, and whether you hold down other jobs.

I have attempted to simplify the tax-deductibility rules into categories of individuals, but I suggest you also confirm your ability to claim a tax deduction with the Australian Taxation Office. Here goes: You can claim a tax deduction for super contributions if you fall into one of the following categories:

  • You’re self-employed and you’re not working under a contract principally for your labour.
  • You’re not employed; for example, you’re a full-time investor or looking after children.
  • You receive part of your income as an employee but less than 10% per cent of your assessable income and reportable fringe benefits are attributable to employment as an employee. The 10% test sounds fairly complicated but if you’re employed, and self-employed, then you can work out step-by-step work if you’re eligible to claim a tax deduction for your super contributions. Note that employment income includes reportable employer super contributions, such as salary sacrifice contributions, but doesn’t include Superannuation Guarantee contributions. 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 are also added back to assessable income when working out whether an individual satisfies the 10% test – the employment income divided by total income must be less than 10% for an individual to claim a tax deduction for his or her own super contributions.

Note: Tax-deductible super contributions and other concessional contributions are subject to 15% tax within a super fund, which means that claiming a tax deduction for super contributions may not be tax effective if you pay less than 15 cents in the dollar tax on your income. Note that some self-employed individuals may be eligible for a refund of the contributions tax paid on super contributions (for more information see SuperGuide article Super tax refund for lower-income earners starts July 2012).

Important: If you plan to claim a tax deduction for a super contribution, you must notify your super fund in writing before you lodge your tax return for the financial year, or by the end of the financial year following the year the contribution was made, whichever is earlier.

You can find more information on the rules for claiming tax deductions for super contributions on the SuperGuide website, and the ATO website.

© Copyright Trish Power 2009-2014

Copyright for this article belongs to Trish Power, and cannot be reproduced without express and specific consent.


IMPORTANT: SuperGuide does not provide financial advice. Comments provided by readers that may include information relating to tax, superannuation or other rules cannot be relied upon as advice. SuperGuide does not verify the information provided within comments from readers. Readers need to seek independent advice about their personal circumstances.

Comments

  1. Hi Trish,

    I was just curious are ETPs (& payments for annual and long service leave) included and employment income in the 10% employment test? I was terminated from my job in July 2013 – was paid out an ETP, accrued long service leave – commenced my own business in August 2013. I am wanting to claim a personal super deduction for FY2014.

  2. Hi Trish,

    I have lodge a DASP (Departed Australia Superannuation Payment) . I have received my payment and noticed that it has been taxed at 35%.

    I was wondering if i can actually claim this back? And would i have to wait until the end of the financial year? ( Just because already have lodged a tax return prior to lodging a DASP).

    Kind regards,
    Bryan

  3. Sufei Zhou says:

    Q. I am full-time investor with share ,My income from share dividend . I have never made super contributions in my life. Am I eligible to make super contributions, and can I claim a tax deduction for those super contributions?

  4. Dear Trish,
    I have a problem in that I made what I believed was an appropriately tax deductible super contribution of $30,000 in June of this year. I also notified my fund with the correct form.
    Nearly all (95%) of my $101,000 income is of a personal services nature (medical field practice), thus part of the “Income/Loss from a Business” line on my E-Tax return.
    When I attempt to lodge my 2010/11 return online, the system says that my deductions for super & charitible contributions exceed my income (warning V-82).
    Therefore, the E-Tax architecture does not recognise my business income as being of a personal services nature.
    Am I doing something wrong, as I’ve re-read the ATO’s guidelines and it seems to me that I am allowed to deduct the special super contribution I made?
    Thank you very much.
    Tom

  5. Trish,

    I am employed as an Expat in the Oil and Gas Industry presently working offshore in India. I intend contributing 50k to my Australian Managed Super Fund as a concessional contribution. ( I am 52 ) I do not qualify for any tax credits for the 2010 tax year so will be liable for 100% tax in Australia at the maximum tax rate. I am confussed over the 10% rule and my situation since the Tax changes made to section 23AG. ( Foreign Employment Income ) I am an Australian Resident for tax purposes.

  6. Handyman says:

    For the current financial year (2009-2010), I am presently on government benefits while re-training for new career. Will begin paid work from July 2010 onwards. In the first few months of the financial year, I was paid $10K as a part-time Handyman (self-employed using my "labour"). In short, this is excess of 10% of my taxable income (assuming $12K govt. allowance income + $8K investment income). I would like to contribute a $3K top-up to one of my super funds prior to 30 June.
    Would this $10K handyman income be considered as an "employee income", thus making it ineligible for me to claim a tax-deductible concessional contribution? Or should this be done as a non-concessional contribution to get that $1K co-contribution from Aust Govt?
    In any case, I'm liable for 15% tax regardless on how I contribute $3K or so (as a super contribution tax or on my assessable income!).

  7. Hi Trish,

    Is it possible for you to elaborate on the “not working under a contract principally for your labour” statement. I have an ABN, and have a registered business name to run as a sole trader however I tend to perform long term “business consultancy” contracts (3-6 months) for various clients. I therefore want to pay my own super and obtain the benefits of the deductions as I’m not getting any contributions from an employer.

    Thanks in advance for your assistance, great website BTW :)

    Regards
    Chris

  8. Trish,

    I am about to make a capital gain of about $200,000. My marginal tax rate is 30% and I am an employee and 43 years old.

    I want to contribute the equivalent of the capital gains tax component to my super, which is not self managed, so I save some money for the long run?

    Is this a non-concessional super contribution and thus I can claim it all as a tax deduction or do I need to contribute an amount that when 15% is taxed and charges taken out it is the same as the Capital Gain Tax due to contribution tax?

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