Q: If I make a personal concessional payment of $25,000 (tax-deductible) into my super fund and my personal taxable income for 2017/2018 is $20,000, are there possible tax penalties because I’m claiming $5,000 more than my taxable income?
I suggest you chat to a registered tax agent, typically an accountant to determine the best strategy for your circumstances, although you should be aware that it’s not possible for an individual to claim more than they earn as a tax-deductible super contribution. An individual is not permitted to claim a super contribution as a tax deduction if that super contribution creates a loss for tax purposes, or increases a loss.
An individual earning $20,000 would also need to decide whether making a super contribution to reduce taxable income to zero is the most tax-effective option, especially when any individual earning less than $20,542 does not pay income tax under the Australian income tax rates (for latest income tax rates, see SuperGuide article Australian income tax rates for 2018/2019 and 2017/2018 years (and earlier years) and see also SuperGuide article Income tax cuts for 2018/2019 year (and for future years)).
According to the ATO, only the amount of personal super contributions that the ATO allows an individual as a deduction in their income tax return counts towards their concessional contributions cap. What this means is that the remainder of the individual’s personal contributions will count towards their non-concessional (after-tax) contributions cap. (for more information on your non-concessional contributions cap, see SuperGuide article Your 2018/2019 guide to non-concessional (after-tax) contributions).
Note: In relation to the practical implications of having such a deduction denied, and what happens to the reporting of that part of the contribution that can’t be claimed as a tax deduction, it is possible to vary an intent to claim a tax deduction (see SuperGuide Concessional contributions: What form do I use to claim a tax deduction?).
Important: In theory, there is no limit on the amount an individual can claim as a deduction, subject to having income to claim against. The practical effect of the concessional (before-tax) concessional contributions cap means that if an individual claims more than the concessional contributions cap, they will be hit with extra tax, or will need to withdraw the excess super benefits. You can find out more information about claiming deductions for personal super contributions by checking out the SuperGuide article Who can now make tax-deductible super contributions?. You can find out more information about excess contributions by reading the SuperGuide article Excess contributions rules: A quick summary.
Background: For more information on making tax-deductible super contributions, see the following SuperGuide articles:
- Who can make tax-deductible contributions?
- Tax-deductible super contributions: No longer need to meet 10% income test
- Concessional contributions: What form do I use to claim a tax deduction?
- Employees can now make tax-deductible super contributions (since July 2017)
- Tax-deductible super contributions: Timing start of pension is essential
- Super for beginners, part 6: Can I make concessional (before-tax) contributions while I am not employed?
- Managing capital gains tax with super contributions
- Super concessional (before-tax) contributions: 2018/2019 survival guide