Who Can Make Tax-Deductible Superannuation Contributions?

Since the super changes came into effect on 1 July 2017, the ATO claims more Australians can use their concessional contributions cap due to improved flexibility.

In early 2017, the Federal Government passed legislation that affected super contributions and how super and retirement income is taxed. One element of the changes was to concessional (before tax) contributions – one of the two broad types of super contributions you can generally make. The other type is non-concessional (after tax) contributions.

As outlined by the Australian Taxation Office (ATO), concessional contributions include:

  • Superannuation Guarantee amounts; usually minimum contributions of 9.5% of your earnings paid by your employer into your super fund
  • Salary sacrifice amounts paid into your super fund
  • Personal contributions to your super where you can claim a tax deduction for those contributions

Since 1 July 2017, eligible people have been able to make concessional contributions of up to $25,000 into their super fund each year.

Am I eligible to make tax-deductible superannuation contributions?

As a result of the changes in law, the ATO states that from 1 July 2017, people aged under 75 may be able to claim a tax deduction on personal super contributions, subject to the annual concessional contributions cap. People aged 65-74 may also be eligible depending on whether they meet the ‘work test’, whereby they must have worked at least 40 hours within 30 consecutive days in a financial year, according to the ATO.

As explained on the MoneySmart website, the ability for most Australians to make the most of their concessional contributions cap and claim a tax deduction comes from the removal of the 10% maximum earnings rule. Prior to July 2017, it was mainly self-employed individuals who could claim a tax deduction for personal contributions to their super if they met certain conditions; one of those being that less than 10% of their income was from salary and wages. But since the removal of the 10% rule, a wider range of people including full-time employees can potentially make tax-deductible super contributions.

According to the ATO, you can usually claim a deduction for personal super contributions made after 1 July 2017 if:

  • You meet the age restrictions
  • Notify your super fund in writing of the amount you intend to claim as a deduction
  • Your super fund accepts your notice of intent to claim a deduction in writing

Important to note: The ATO stipulates if you exceed your contributions cap of $25,000, you may be liable to pay extra tax, and any excess concessional contributions will also generally count towards your non-concessional contributions cap.

What are the age restrictions?

The ATO stipulates there are two key points to note about age restrictions:

  • If you are aged under 18 at the end of the income year when you made the contribution, you will only be able to claim a deduction for personal contributions to super if your income is earned as an employee or business operator; and
  • If you are aged 75+ years, you will only be able to claim a deduction for contributions made on or before the 28th day of the month following the month when you turned 75

How do I notify my super fund?

The ATO and most super funds provide details of the process you can follow if you wish to claim a tax deduction for personal super contributions. As a general rule, many funds specify you need to provide a notice of intent to your super fund and receive an acknowledgement in writing. As outlined on the ATO website, this should done be on or before the earlier of:

  • the day you lodge your tax return for the year in which the contributions were made, or
  • the end of the following financial year

The ATO states you can notify your fund by:

Once you have received acknowledgement from your fund, you can claim your deduction through your tax return. Be aware though, that according to the ATO, once you claim a deduction, your concessional contribution will be taxed at up to 15% within the super fund, and you can’t receive co-contributions for it.

Keep in mind that, as stipulated by the ATO:

  • The notice of intent is only valid if you’re still a member of the super fund, the fund still holds your personal contribution and it hasn’t started paying an income stream using any of the contribution money
  • Your notice of intent will be invalid and you won’t be able to claim a deduction if you close your super account or withdraw your entire super interest (pay it out of super as a lump sum)

What can’t I claim?

The ATO states that you can’t claim deductions for:

  • Benefits transferred from a foreign super fund
  • Rolled-over super benefits
  • Directed termination payment sent into a super plan by your employer under transitional arrangments that were applicable until 30 June 2012
  • Contributions paid by your employer from your before-tax income. This includes the Super Guarantee and any salary sacrificing
  • From 1 July 2017, contributions to:
    • Commonwealth  public sector superannuation scheme where you have a defined benefit interest
    • Super fund that won’t include the contribution in their assessable income
    • Other super funds or contributions specified in ATO regulations

Will my tax-deductible superannuation contributions be taxed in my super fund?

Generally speaking, the ATO states concessional contributions and tax-deductible super contributions are subject to a maximum of 15% tax in a super fund. This varies, however, for higher earning Australians and lower-income earners, as detailed by the ATO.

Higher-income earners

With the super changes on 1 July 2017 came a revision to the threshold at which high-income earners pay additional contributions tax, otherwise known as Division 293. The threshold is now $250,000 for annual income – any more earned over that amount would mean 30% tax would be applicable to those individuals.

Lower-income earners

The ATO states the introduction of the Low Income Superannuation Tax Offset (LISTO) provides a tax refund of up to $500 on super contributions by Australians earning up to $37,000 per year. The Government said the LISTO will provide relief for many low-income earners who were previously paying more tax on their super contributions than on their taxable income.

To learn more about superannuation in Australia, check out Canstar’s roundup of how the new tax changes to super could affect you.

If you’re comparing Superannuation funds, the comparison table below displays some of the products currently available on Canstar’s database for Australians aged 30-39 with a balance of up to $55,000, sorted by Star Rating (highest to lowest), followed by company name (alphabetical). Use Canstar’s superannuation comparison selector to view a wider range of super funds.

Fee, performance and asset allocation information shown in the table above have been determined according to the investment profile in the Canstar Superannuation Star Ratings methodology that matches the age group you selected.