Super for beginners, part 6: Can I make concessional (before-tax) contributions while I’m unemployed?

Q: I have been made redundant and would like to know if any contribution in super is tax deductible while I’m unemployed even if I would find work in the next couple of weeks?

Trish’s response: Yes, it’s possible to make concessional contributions while an individual is unemployed, but whether that is the appropriate option depends on your age, your level of assessable income, and whether you have been substantially employed in the financial year that you have experienced unemployment.

If you’re under the age of 65, you don’t have to be working to make super contributions. You can be unemployed or otherwise not working and still make super contributions.

Now, whether an individual who is unemployed wants to make concessional (before-tax) contributions really depends on the income that person earns during the financial year in which he intends to make the concessional contributions. Concessional contributions are subject to a contributions tax of 15%, which generally means such a strategy is only tax-effective if you pay more than 15 cents in the dollar tax on your personal income: for the 2011/2012 year, that means having a taxable income that is greater than $37,000. Click here to find out more about the latest income tax rates.

Assuming that such a strategy is tax-effective, an individual who is not an employee, or who is not substantially employed, can claim a tax deduction for contributions in his or her tax return. But wait, I make this statement with a huge proviso.

If you have had an employer who has made super contributions on your behalf during the financial year, then it may not be possible for an individual who is now unemployed, or self-employed, to make concessional contributions during that same financial year.

For an unemployed individual to make a tax-deductible contribution, you must have received no employer super contributions during the financial year, or your earnings as an employee are below a specified percentage.

According to the ATO, you can claim a deduction on personal contributions, even if you receive some income as an employee, as long as you satisfy the ‘maximum earnings as an employee’ condition. Under this condition, the amount you earn as an employee must be less than 10% of your combined assessable income and reportable fringe benefits for that income year. This is the case regardless of whether your employer has paid super on your behalf.

You can find more information on concessional contributions in the article Your 2011/2012 guide to non-concessional (after-tax) contributions.

See also

• Super for beginners, part 3: Why aren’t my super contributions tax-free?
• Who can make tax-deductible super contributions?
• I’m retired. Can I make super contributions?
• Super for beginners, part 17: Four must-knows about super’s tax rules
• Super for beginners, part 7: Can I split my super benefits with my spouse?

Related topics