Note: Since 1 July 2017, all eligible Australians under the age of 75 can claim tax deductions for personal super contributions, subject to the annual concessional contributions cap. Such a measure can assist Australians who may be partly self-employed and partly employed, or individuals who work for employers who don’t accommodate salary sacrificing. If you are seeking the rules in place for the 2016/2017 year, see end of this article.
Generally speaking, you can make two types of super contributions: non-concessional (after-tax) contributions and concessional (before-tax) contributions. Concessional contributions include Superannuation Guarantee contributions (made by an employer), salary sacrifice contributions, and tax-deductible super contributions (that is, where an individual claims a deduction for making the super contribution).
For the 2017/2018 year, that is, from 1 July 2017 to 30 June 2018, an eligible individual can make concessional contributions of up to $25,000.
Note: Although this article does not deal with non-concessional contributions, it is important to note rules changes, and cuts, to the non-concessional (after-tax) contributions cap since July 2017 (see SuperGuide articles New $100,000 cap: Cut to non-concessional contributions cap and Non-concessional contributions: 10 facts about new $100,000 cap).
Am I eligible to make tax-deductible super contributions?
Since 1 July 2017, you can be an employee and make tax-deductible super contributions. If you’re self-employed, or substantially self-employed, or not employed, you have always been able to claim a tax deduction for your super contributions.
If you claim a tax deduction for your super contributions, this means these super contributions are treated as concessional contributions.
Note: 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.
Before July 2017, individuals who were both employed and self-employed had to meet a 10% income test rule, while full-time employees were not permitted to make tax-deductible super contributions. Since 1 July 2017, the 10% income test rule will no longer apply when making tax-deductible super contributions, and full-time employees can also make tax-deductible super contributions.
All Australians can make tax-deductible super contributions, subject to meeting the requirements. The 10% income test applied for the 2016/2017 year, and is explained at the end of this article.
Are my tax-deductible super contributions taxed in the super fund?
Tax-deductible super contributions and other concessional contributions are subject to 15% tax within a super fund (and 30% tax for Australians earnings more than $250,000 – see next para), 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 individuals may be eligible for a refund of the 15% contributions tax paid on super contributions (for more information see SuperGuide article LISTO: Super tax refund for lower-income earners).
If you’re a high-income earner: If your ‘income for surcharge purposes’ is more than $250,000 a year, then your concessional contributions will be subject to an additional 15% tax, known as Division 293 tax. Since 1 July 2017, if your ‘income for surcharge purposes’ is more than $250,000, your super account will also be hit with extra tax. For the 2016/2017 year, the additional tax applied to individuals with income for surcharge purposes of more than $300,000. For more information on this extra tax, see SuperGuide article Double contributions tax for more high-income earners.
Complete paperwork when making tax-deductible contributions
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 out more about the form that you must use to notify your super fund by checking out the SuperGuide article Concessional contributions: What form do I use to claim a tax deduction?
Different rules applied for 2016/2017 year, and earlier years
Before July 2017, if you were an employee, in nearly all circumstances you could not claim a tax deduction for making a super contribution, although you could get a similar tax benefit by making salary sacrifice contributions.
Note: For the 2016/2017 year (and earlier years), if you were an employee and you could satisfy the 10% income test rule (see below for an explanation), then you could claim a tax deduction for a super contribution, even as an employee.
Before July 2017, the rules for claiming tax deductions on super contributions were complex and depended on the type of work that you did, and whether you held down other jobs. I have attempted to simplify the 2016/2017 year 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.
For the 2016/2017 year, you could claim a tax deduction for super contributions if you fall into one of the following categories:
- Self-employed. You were self-employed and you were not working under a contract principally for your labour.
- Not employed. You were not employed; for example, you’re a full-time investor or looking after children.
- 10% income test rule. You received part of your income as an employee but less than 10% per cent of your assessable income plus salary sacrifice contributions plus reportable fringe benefits were attributable to employment as an employee.
Meeting the 10% income test: The 10% test sounds fairly complicated but if you were employed, and also self-employed, then you could work out step-by-step work if you’re eligible to claim a tax deduction for your super contributions. Note that employment income included reportable employer super contributions, such as salary sacrifice contributions, but didn’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 (such as salary sacrifice 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. We also explain the 10% income test rule in the SuperGuide article Tax-deductible super contributions: No longer need to meet 10% income test.
Note: For the 2016/2017 year, that is, from 1 July 2016 to 30 June 2017, an eligible individual could make concessional contributions of up to $30,000 a year if aged 48 years or under on 30 June 2016, and up to $35,000 for the year if aged 49 years or over on 30 June 2016. (For the general rules applicable to concessional contributions see SuperGuide article Super concessional (before-tax) contributions: 2017/2018 survival guide.)