Are you entitled to a tax deduction on personal super contributions?

Published 17 April 2018

Last financial year was the first time that employees were able to claim a tax deduction for their personal super contributions.

Personal super contributions made during the 2017-18 financial year can now be claimed as a tax deduction by most Australian workers.

This follows changes made by the government which came into effect on 1 July 2017.

Previously, only the self-employed, unemployed, retirees, or those who earned less than 10% of their income as an employee, could claim a tax deduction for a personal super contribution.

How tax deductible personal super contributions work and who it helps

Personal super contributions are made using after-tax dollars, such as when you transfer funds from your bank account into your super. This money could come from savings, an inheritance, or from the proceeds of the sale of an asset, for example.

From 1 July 2017, the “less than 10% rule” was abolished. As a result of this change, if you make a personal super contribution, you can now claim a personal tax deduction for the amount of the contribution in your tax return. This will result in a reduction in your taxable income and, therefore, in your personal income tax liability for the relevant year.

Because personal contributions to your super fund (which you claim a tax deduction for) will only be taxed at 15%, this produces broadly the same tax benefit offered by salary sacrificing from before-tax dollars into your super.

This change is of particular benefit to you if your employer doesn’t offer you the option to salary sacrifice, or if you receive a windfall (such as a bonus), or a one-off capital gain (such as through the sale of an investment), that you’d otherwise pay tax on at your full marginal rate.

The Association of Superannuation Funds of Australia (ASFA) estimates that the rule change means an additional 850,000 people will be able to claim a tax deduction for personal contributions made to their super¹.

But while there can be a tax benefit to making a personal tax-deductible contribution to your super, it’s worth remembering that you’re then generally not able to access the money you put into your super until your retirement.

What do I need to do to benefit from a tax deduction on a personal super contribution?

In order to benefit from the change, there are some steps you need to take – in order – so it’s worth considering your position ahead of the end of the financial year. If you’d like to benefit from a tax deduction on a personal super contribution, in the following order, you’ll need to:

1. Make a personal contribution to your super. The amount you choose to contribute is up to you, however, you need to bear in mind your contribution caps (for more on this, see below). If you’re an AMP customer, you can do this online by logging into My AMP.
2. Lodge a notice of intent to claim or vary a deduction for personal super contributions form with your super fund, which your super fund will acknowledge, in writing.

If you’re an AMP customer, you can do this online by logging into My AMP, selecting the superannuation account you intend to claim a tax deduction for, and then clicking View More > Claim a tax deduction.

3. Following the end of the financial year and using the written acknowledgement from your super fund, which will confirm both your intention to claim a tax deduction and the amount you can claim, prepare and lodge your tax return.

What else do I need to know about personal tax deductible super contributions?

There are a few extra considerations to keep in mind. These include:

• This incentive is available to anyone who is eligible to contribute to their super – although those aged 65 and over need to meet the work test to make a personal super contribution, and those under 18 can only claim a deduction for a personal super contribution if they also earned income as an employee or a business operator during the year.
• If you’re claiming a tax deduction for a personal super contribution, the contribution will count towards your before-tax (concessional) contributions cap of $25,000. The super guarantee contributions your employer makes on your behalf, and any salary sacrifice contributions you may have made, also count towards this cap.
• To ensure your ability to claim a tax deduction is not affected, you shouldn’t make any withdrawals or start drawing a pension from your super before your ‘notice of intention’ form has been lodged with your super fund.
• Personal super contributions that you claim a tax deduction for will not be eligible for a super co-contribution.
• If you earn more than $250,000 your concessional super contributions will be taxed at 30% (as opposed to 15%).

For more information

Speak to us to determine whether claiming a tax deduction on personal super contributions is the best strategy for your circumstances.