This article assists with determining eligibility for claiming a tax deduction on contributions for money you have contributed into your super from after-tax income.
Eligibility:
You can claim a deduction for your personal super contributions if:
You meet certain rules based on your age (see below)
Your taxable income is more than the amount you want to claim as a deduction (your deduction can’t give you a tax loss)
You provide notice to your fund telling them how much you want to claim (specific documentation)
You provide the notice within the timeframe required (see below)
Your fund confirms your notice was valid and sends you the required acknowledgement letter
If you do not meet all these rules, you aren’t eligible to claim a deduction for your contributions.
Age-based rules
If you were under 18 at the end of the year in which you made your contribution, you can only claim a deduction if you earned income during that year from carrying on a business or as an employee.
If you were 67 to 74 when you made your contribution, you can only claim a deduction if you met the “work test” in that year. To meet the work test, you need to have:
Worked for at least 40 hours in a 30 day period during the financial year, and
Been paid for that work.
Examples:
You run a business in your own name and received income from the business, or
You are a director of a company (including your own) were entitled to and received a directors fee, or
You are a partner in a partnership which runs a business and you received a distribution from the partnership, or
You are an employee and received a salary, wage or bonus from your employer.
Receiving a dividend from a company which runs a business or a distribution from a trading trust is not normally enough even if you are actively involved in the business.
If you were 75 or older at the time you made your contribution, you can only claim a deduction if your contribution was made before the 28th day of the month after your 75th birthday and you have met the work test. After this time, you can only contribute via downsizer contributions, super guarantee contributions or contributions your employer is obliged to make for you under an award.
If you are between 18 and 66, there are no extra age-based rules for you to meet.
Timeframes for giving notice
You need to give your notice to your fund before the earlier of:
When you lodge your personal income tax return for the year in which you made your contribution or
30 June of the following year.
Example
You made a contribution to super on January 2024 and want to claim a tax deduction for it. You will need to tell your fund that you plan to claim a tax deduction for the contribution by the day you lodge your 2023/2024 income tax return or 30 June 2025 (whichever is earlier)
Things to consider when giving notice:
Starting a pension from your fund
Drawing a lump sum from your accumulation account in your fund
Rollover over the benefits in your accumulation account to another fund or
Splitting your contributions with your spouse.
You will need to contact your fund before any of the above occurs.
Claiming a deduction for contributions
By advising your fund that you want to claim a deduction for your contribution:
It will count towards your concessional contributions cap. (currently $27,500 and increasing to $30,000 from 1 July 2024) rather than your non-concessional contributions cap (currently $110,000 increasing to $120,000 from 1 July 2024) annually depending on your super balance.
The fund taxes your contribution at 15%.
If you are a low income earner, an offset is available to reduce this.
If you are a high income earner, you may have to pay an additional 15% tax on contributions.
Changes
If you decide to change your contribution claimed, you must vary your notice and notify your fund if you are within the above timeframes.
Depending on how you contributed (1 amount or multiple amounts) you can not vary to increase the amount you are claiming unless multiple contributions made and only gave notice for some contributions.
Tax Return
Make sure you let us know that you have contributed to super, provide us with your acknowledgement letter so we can claim the tax deduction for you in your tax return or we can assist you with the relevant documentation to be lodged with your super fund. If we are not aware of the deduction and you have not lodged the proper documentation, you may overpay tax in your tax return and could have adverse outcomes against your non-concessional contributions if cap is exceeded.
We provide expert advice and support to help you establish and manage your SMSF. Contact us today to discuss how we can help you achieve your retirement goals.
Disclaimer
No person should rely on the contents of this publication without first obtaining advice from a qualified professional person. This publication is for discussion and education purposes only and the editor is not responsible for the results of actions taken on the basis of information in this publication, nor for any error or omission from this publication. This editor expressly disclaims all and any liability to any person, including reader for any part of this publication.