Note: Taking effect from 1 July 2017, all eligible Australians under the age of 75 will be able to claim tax deductions for personal super contributions, subject to the annual concessional contributions cap. Such a measure will assist Australians who may be partly self-employed and partly employed, or individuals who work for employers who don’t accommodate salary sacrificing. For the 2015/2016 and 2016/2017 financial years however, the rules explained in this article continue to apply.
Generally speaking, you can make two types of super contributions: non-concessional (after-tax) contributions and concessional (before-tax) contributions. Concessional contributions can also include tax-deductible super contributions, where an individual claims a deduction.
For the 2016/2017 year, that is, from 1 July 2016 to 30 June 2017, an eligible individual can 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: 2016/2017 survival guide.)
For the 2015/2016 year, that is, from 1 July 2015 to 30 June 2016, an eligible individual can make concessional contributions of up to $30,000 a year if aged 48 years or under on 30 June 2015, and up to $35,000 for the year if aged 49 years or over on 30 June 2015. (For the general rules applicable to concessional contributions see SuperGuide article Super concessional (before-tax) contributions: 2016/2017 survival guide.)
Note: From 1 July 2017, the Coalition government has cut the concessional contributions cap to $25,000 for Australians of all ages. The plans to cut the concessional cap don’t affect the caps for the 2015/2016 or 2016/2017 financial years.
Important: Although this article does not deal with non-concessional contributions, it is necessary to note important changes, and cuts, to the non-concessional (after-tax) contributions cap. For more information on the changes to the non-concessional cap, 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?
If you’re self-employed (or substantially self-employed) or you’re not employed, you can claim a tax deduction for your super contributions, which means these super contributions are treated as concessional contributions. 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.
If you’re an employee, in nearly all circumstances you cannot claim a tax deduction for making a super contribution, although you can get a similar tax benefit by making salary sacrifice contributions.
Note: For the 2015/2016 year and 2016/2017 year, if you’re an employee and you can satisfy the 10% income test rule (more on this later), then you may be able to claim a tax deduction for a super contribution, even as an employee.
The rules for claiming tax deductions on super contributions can be complex depending on the type of work that you do, and whether you hold down other jobs.
I have attempted to simplify the 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. Here goes: You can claim a tax deduction for super contributions if you fall into one of the following categories:
- Self-employed. You’re self-employed and you’re not working under a contract principally for your labour.
- Not employed. You’re not employed; for example, you’re a full-time investor or looking after children.
- 10% income test rule. You receive 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 are attributable to employment as an employee. The 10% test sounds fairly complicated but if you’re employed, and also self-employed, then you can work out step-by-step work if you’re eligible to claim a tax deduction for your super contributions. Note that employment income includes reportable employer super contributions, such as salary sacrifice contributions, but doesn’t include Superannuation Guarantee 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.
Important: Taking effect from 1 July 2017, the 10% income test rule will no longer apply, and all Australians will be able to make tax-deductible super contributions. We also explain the 10% income test rule in the SuperGuide article Tax-deductible super contributions: Meeting the 10% income test. For the rules that will apply from 1 July 2017, see SuperGuide article Employees can make tax-deductible super contributions from July 2017.
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 $300,000 – 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 self-employed (or employed) individuals may be eligible for a refund of the 15% contributions tax paid on super contributions (for more information see SuperGuide article Super tax refund for lower-income earners extends beyond June 2017).
If you’re a high-income earner: If your ‘income for surcharge purposes’ is more than $300,000 a year, then your concessional contributions will be subject to an additional 15% tax, known as Division 293 tax. From 1 July 2017, the extra tax will apply to more Australians: if your ‘income for surcharge purposes’ is more than $250,000, your super account will also be hit with extra tax. 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?