Tax-deductible super contributions are an option that more Australians can now consider due to recent legislative changes. However, it can be a complex area, so with tax-time looming, it’s a topic worth reviewing.
Firstly, it’s important to understand that you cannot claim a tax deduction for any super contributions that your employer makes on your behalf. For example, you cannot claim the 9.5% compulsory super guarantee (nor any reportable contributions above this amount, including any salary sacrifice arrangements you may have).
You also can’t claim deductions for:
- A payment to your super fund that is a rollover from another fund (including foreign funds)
- First Home Super Saver (FHSS) scheme contributions
What are tax-deductible super contributions?
Tax-deductible super contributions include those made with after-tax income, such as a payment made to your super fund from your bank account. These contributions count towards your concessional contributions cap (which is currently $25,000 per year, unless you are using the carry-forward rule). Concessional super contributions are taxed at 15%, unless you’re a high income earner and exceed the Division 293 threshold. If you do, you’re liable for an extra 15% tax.
It’s important to understand that if you’re an employee, your employer’s superannuation guarantee payments and any salary sacrificing arrangements you may have are counted toward your concessional contributions cap.
Making voluntary tax-deductible super contributions is a way that you can increase your concessional contributions if your employer doesn’t offer salary sacrificing arrangements. However, if you exceed your concessional contributions cap, you’ll also be liable to pay extra tax. The excess contributions will also count towards your non-concessional contributions cap (which is currently $100,000 per year, unless you are using the bring-forward rule).
Who can make tax-deductible super contributions?
Changes to super legislation on 1 July 2017 have made it possible for more Australians to be able to make voluntary, tax-deductible, concessional super contributions, provided you meet the eligibility criteria.
Prior to 1 July 2017, only self-employed people (defined in super legislation as earning less than 10% of their income from salary or wages) were eligible to claim tax deductions for super contributions. Self-employed people can still do this, however you’re now also eligible to make tax-deductible personal super contributions if you:
- Earn salary or wages as an employee
- Earn investment income
- Receive a government pension or allowance
- Receive a partnership or trust distribution
- Earn income from foreign sources
- Earn superannuation income
To be eligible to claim a tax-deductible super contribution you must also:
- Be aged under 75
- Meet the work test if you’re aged between 65 and 74
- Not use the contribution to help fund an existing super income stream or pension
- Not be splitting the contribution with your spouse (married or de facto)
- Not be made to an untaxed super fund or a Commonwealth public sector defined benefit fund
If you do claim a tax deduction for your personal super co-contributions, you won’t be eligible for any government super co-contribution entitlement.
How do you claim a tax deduction for a concessional contribution?
If you meet the eligibility criteria, you must provide your super fund with a ‘Notice of intent to claim or vary a deduction for personal super contributions’ form (NAT 71121). This form is downloadable from the Australian Taxation Office’s (ATO’s) website, or it can be obtained from your super fund.
Once you complete this form, you must:
- Provide it to your fund by end of the following income year in which you made the tax-deductible super contribution, or by the day you lodge your tax return for the income year in which you made the contribution (whichever date is the earliest).
- Receive written acknowledgement from your fund before you claim the tax deduction on your tax return. This acknowledgement will confirm the super contribution amount that you are eligible to claim as a tax deduction.
Making voluntary tax-deductible super contributions was previously only an option available to self-employed people. However, since 1 July 2017, it is now an option that employees can consider. Whether it’s an appropriate option for you depends on your individual financial circumstances. It’s worthwhile to seek independent professional advice.
The information contained in this article is general in nature.