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.