Q: If I make a personal concessional payment of $30,000 (tax-deductible) into my super fund and my personal taxable income for 2016/2017 is $20,000, are there possible tax penalties because I’m claiming $10,000 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 to claim more than you earn as a tax-deductible super contribution. You are 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.
You also need to decide whether making a super contribution to reduce your 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 2017/2018 and 2016/2017 years).
According to the ATO, only the amount of personal super contributions that the ATO allows you as a deduction in your income tax return counts towards your concessional contributions cap. What this means is that the remainder of your personal contributions will count towards your non-concessional (after-tax) contributions cap. (for more information on your non-concessional contributions cap, see SuperGuide article
Your 2016/2017 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 this link on the ATO website).
Important: In theory there is no limit on the amount you 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 you claim more than the concessional contributions cap, you will be hit with extra tax, or you need to withdraw the excess benefits. You can find out more information about claiming deductions for personal super contributions by checking out the SuperGuide article Who can 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: Meeting the 10% income test
- Concessional contributions: What form do I use to claim a tax deduction?
- Employees can make tax-deductible super contributions from July 2017
- Managing capital gains tax with super contributions
- Super concessional (before-tax) contributions: 2016/2017 survival guide