Getting your personal super deductions right

Super Contributions DeductionsRecent changes to the law mean many more Australians can now claim deductions for their personal superannuation contributions. But while the eligibility requirements have been lowered, the process for claiming deductions contains many traps

. Do you know what steps to take and what to look out for?

The ATO is running a campaign to make sure Australians understand the requirements for deducting a personal superannuation contribution. Thanks to recent reforms, potentially anyone can now claim a deduction (subject to certain age limits). However, it is essential to get the process right.

What contributions can I deduct?

Provided you are eligible, superannuation contributions you make for yourself from your after-tax income are deductible. However, when you choose to deduct these amounts, they become concessional contributions (CCs) and count towards your annual CC cap of $25,000. This requires careful management because your CC cap also includes employer contributions such as compulsory superannuation guarantee amounts and salary-sacrifice contributions.

The ATO says a common mistake is for individuals to incorrectly claim a deduction for pre-tax contributions such as extra salary-sacrifice amounts. Although employer contributions also count towards your CC cap, it is only personal contributions you make from your own after-tax funds that you are entitled to deduct.

When you make a personal contribution from after-tax income and you don’t claim a deduction, the amount counts towards your non-concessional contributions (NCC) cap.

Am I eligible?

Prior to 1 July 2017, only substantially self-employed individuals could deduct personal superannuation contributions. This rule has been abolished, so now even those who earn significant amounts of income as employees can potentially deduct their personal contributions. This is good news for workers whose employers do not offer salary-sacrificing.

Today, the main eligibility requirement concerns age. You can deduct a personal contribution, as long as you make the contribution within 28 days of the end of the month in which you turn 75. And remember, you must meet a “work test” in order to make contributions if you are aged 65 or over (proposed in the Budget to increase to age 67 from 1 July 2020). Special rules apply to individuals under 18 years.

Restrictions also apply to contributions to certain Commonwealth public sector schemes and constitutionally protected funds and other untaxed funds.

What do I need to do?

Getting the process right is vital because an administrative misstep can jeopardise your deduction and result in your contribution counting as an NCC rather than a CC.

You must give the trustee of your superannuation fund a notice of your intention to claim a deduction. You can use the ATO’s form for this purpose, or your fund’s own form. The form must be lodged with the trustee by the earlier of:

  • the day you lodge your tax return for the income year in which you made the contribution; and
  • the end of the income year after the income year in which you made the contribution.

The trustee must give you an acknowledgement that they have received the notice before you can make the deduction claim in your tax return.

Watch out for the following traps:

  • Your notice will not be valid (and therefore, you cannot claim a deduction) if the trustee had started to pay an income stream from any part of the contribution when you gave the notice.
  • It will also not be valid if you had rolled over all of your benefits out of the fund, or withdrawn all your benefits, when you gave the notice.
  • You can only deduct the exact amount you specify in your notice. If you need to change this amount, you need to complete additional paperwork.
  • If you intend to split the contribution with your spouse, there are additional important timing issues to watch.

Plan ahead

Because of the technicalities that can arise when claiming these deductions, it’s best to make your contributions as part of a pre-planned strategy and with expert advice. Contact us today to begin your contributions planning. We’ll ensure you get it right, and help you get the most out of the available contributions measures to grow your retirement savings.

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