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?
All Australians are eligible to make tax-deductible super contributions. A tax-deductible super contribution is treated as a concessional contribution, and concessional contributions are subject to an annual cap.
Before July 2017, only individuals who were self-employed (or substantially self-employed), or who were not employed (or substantially not employed) were entitled to claim tax deductions for super contributions. An individual was also able to claim a tax deduction for super contributions if he or she was substantially not employed, that is, they received only a small part of his or her income as an employee, and they satisfied the 10 per cent income test rule.
For the 2016/2017 year (and earlier tears), you could claim a tax deduction for a super contribution when your income as an employee was less than 10 per cent of your total income. The 10% income test rule is explained later in this article.
Since 1 July 2017, all individuals under the age of 75 are eligible 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. Opening up tax-deductible super contributions to all Australians assists those Australians who may be partly self-employed and partly employed, or individuals who work for employers who don’t accommodate salary sacrificing, or those employees who have bosses who reduce Superannuation Guarantee entitlements. When an employee enters a salary sacrifice arrangement. For more information on the opportunities for employees, see SuperGuide article Employees can now make tax-deductible super contributions (since July 2017). For more details generally on tax-deductible super contributions, SuperGuide article Who can make tax-deductible super contributions?
We suggest you chat to a registered tax agent, typically an accountant to determine the best tax strategy for your circumstances.
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.
What rules applied to tax-deductible super contributions for the 2016/2017 year, and earlier years?
Th rest of the article applies to the 2016/2017 financial year, and earlier years.
The following text is fairly technical but important if the 10% income test rule applied to your circumstances for previous financial years, that is, you made tax-deductible super contributions and you received some employment income.
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 were eligible to make tax-deductible super contributions when your employment income was 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 satisfied the 10% test.
Background: Quoting directly from older text from the ATO website, relating to the 2016/2017 year and earlier years:
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:
- Your assessable income
- your reportable fringe benefits
- your total superannuation contributions.
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).