Making personal contributions into super can be an effective way to grow your retirement savings. Some individuals may also be eligible to claim a tax deduction for their personal super contributions made to their super fund in the year in which the contribution is made.
You will be eligible to claim a tax deduction if:
- You satisfy the maximum earnings as an employee condition
- You meet the age related conditions
- You made personal contributions to a complying super fund
- You made contributions in order to obtain super benefits for yourself, or for your dependants in the event of your death
- You have written to your super fund and advised them of the amount you intend to claim as a deduction
- Your super fund has acknowledged your notice of intent and agreed to the amount you intend to claim as a tax deduction.
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What is the ‘maximum earnings as an employee’ condition?
You may be able to claim a deduction for personal contributions even if you receive some income as an employee, as long as you satisfy the ‘maximum earnings as an employee’ condition.
Under this condition, less than 10% of the total of the following must be in respect of your employments activities:
- Your assessable income for the income year
- Your reportable fringe benefits for the income year
- The total of your reportable employer super contributions for the income year.
This is the case regardless of whether your employer has paid super on your behalf.
Example
During the 2011/12 income year, a self-employed doctor earns $100,000 from his medical practice. During that same year, he also worked as an employee in a hospital where his total earnings were $10,000. Since his earnings as an employee were less than 10% of his total earnings of $110,000, he may still be eligible to claim a deduction for personal contributions to his super fund.
What are the age restrictions for claiming a deduction?
If an individual is under 18 years at the end of the income year in which the contribution is made, the deduction can only be claimed if the income was earned as an employee or a business operator during that year. So if the individual earned purely passive income, such as share dividends, they would not be entitled to the deduction for their personal contribution.
For ages 75 years or older, a deduction can only be claimed for the personal contribution that was made before the 28th day of the month following the month in which the individual turned 75.
Notice of intent to claim a deduction
A written notice must be submitted to the super fund in the approved form advising the super fund of the amount the individual intends to claim as a deduction. The notice must be lodged at the earlier of the day the income tax return was lodged for the year the contributions were made, and the end of the income year after the income year in which the contribution was made.
Once the notice is submitted, it cannot be revoked or withdrawn. It can only be varied to the extent that the amount intended to be claimed as a deduction relating to the contribution is to be reduced. This includes reducing the amount to nil.
Further, the notice can only be varied before the earlier of the day the income tax return was lodged for the year the contributions were made, and the end of the income year after the income year in which the contribution was made. However if the deduction is not allowable, the notice can be varied after this date to reduce the amount intended to claim as a deduction by the amount that is not allowable.
What to watch out for
Remember that a notice to claim a tax deduction will be considered invalid if your super fund has begun to pay an income stream based in whole or part on the contribution.
This applies regardless of whether a residual amount equal to or in excess of the amount sought as a tax deduction is left in the accumulation account.
This means that if you are planning to commence any kind of pension, ensure that you send your super fund a valid notice of intention to claim any tax deductions for personal super contributions prior to commencing the pension. The super fund must acknowledge the notice, and then it is safe to commence the pension.
If the notice is not submitted and acknowledged prior to commencing the pension, you will lose your eligibility to claim the tax deduction.
Important: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. Consider the appropriateness of the information in regards to your circumstances.
