If you’re self-employed or substantially self-employed, you may be able to claim a personal contribution that you put into your superannuation fund as a tax deduction each financial year.

To be eligible to claim a tax deduction, there are criteria you have to meet, rules and guidelines to follow or timeframe by which you have to do certain things as set out by the Australian Taxation Office (ATO) and the Income Tax Assessment Act 1997.

Self-employed or substantially self-employed

Not everyone can claim personal superannuation contributions as a tax deduction; how you’re employed determines whether or not you’re eligible. If you’re working for someone as an employee, you’re not eligible to claim a tax deduction.

Now, let’s see who is eligible and let’s briefly discuss the terms self-employed and substantially self-employed:  

Self-employed – if you’re working for yourself (e.g. as a sole trader), you may be able to claim personal contributions you put into your superannuation fund as a tax deduction. Being self-employed means you don’t have an employer paying you a salary and superannuation guarantee (SG).  

Substantially self-employed or The 10% Rule – if you’re self-employed and also work for someone as an employee, you may able to claim your personal superannuation contributions as a tax deduction if your income (plus reportable fringe benefits and reportable employer superannuation contributions) as an employee for the year is LESS than 10% of your TOTAL income. Another word, you must derive at least 90% of your total income as self-employed to be eligible. This is called the 10% rules.

If you’re not working at all (for someone or for yourself) and therefore not receiving SG contributions, you may also be eligible to claim a tax deduction if you make personal superannuation contributions to your super fund.    

Making a personal contribution

You must first make a personal superannuation contribution in order to claim a tax deduction on it. The personal contribution, also known as non-concessional contribution is not subject to the 15% contributions tax; however, if you claim it as a tax deduction then your fund is obliged to deduct the contributions tax for the ATO. Any personal contributions that have been claimed as a tax deduction are reclassified as concessional contributions.

A concessional contribution includes SG, employer voluntary and salary sacrifice contributions. A personal contribution that you’ve claimed as a tax deduction also forms part of the concessional contribution. All of these contributions are subject to 15% tax.

How much you can claim as a tax deduction

Concessional contributions have a cap and currently the cap is $25,000pa for everybody. If you don’t exceed the cap, you only pay the normal 15% contributions tax. The amount in excess of the cap is subject to a further 31.5% tax (total 46.5%).

There is really no limit as to how much you can claim personal contributions as a tax deduction, however, the maximum amount you can claim without paying additional tax is $25,000.

The idea of claiming a tax deduction is to reduce your taxable income and therefore, the amount of tax you have to pay. It would defeat the purpose to claim the amount in excess of the cap and pay more tax unnecessarily.     

Notifying your fund that you want to claim a tax deduction

If you want to claim your personal superannuation contributions as a tax deduction, you must give a valid notice to your fund in the approved form, of your intention. This form is called Notice of intent to claim or vary a deduction for personal super contributions (Notice). In this Notice you must advise your fund the total contribution you’ve made and the amount you wish to claim in the financial year you made the contributions.

For your fund to acknowledge your Notice and send you an Acknowledgement advice, it must be given the earlier of:

  • before you lodge your tax return; or
  • by the end of the financial year after the financial year in which you made the contribution.  

Additionally, you must give the Notice before you rollover to another fund, take a cash lump sum payment or commence an income stream, if you’re intending to do any of these. If you give the Notice to your fund after you’ve partially withdrawn the benefit or rollover, you may be able to claim part of the contributions as a tax deduction.   

The eligibility criteria for anyone to claim personal contributions as a tax deduction; the person must:

  • be between 18 and 75 years old;
  • be self-employed, substantially self-employed or unemployed;
  • be making personal superannuation contributions;
  • give a Notice to your fund in the approved form that you intent to claim a deduction;
  • give the Notice before the deadline;
  • receive an Acknowledgement advice from their fund;
  • give the Notice before rolling over to another fund, taking a cash lump sum payment or commencing an income stream.

What is the process?

If you make a personal superannuation contribution in the 2012/13 financial year (contribution can be made at anytime between 1 July 2012 and 30 June 2013) and you wish to claim it as a tax deduction in your tax return, the process would look something like this example:

  1. On 31 December 2012, you make $10,000 personal contribution to your super fund.
  2. Your super fund allocates the total amount to your account.
  3. Your super fund reports this amount to the ATO by 31 October 2013 as a non-concessional contribution.
  4. You give the Notice of intent to claim or vary a deduction for personal super contributions to your super fund advising you made $10,000 personal contribution in 2013 financial year and you intent to claim $10,000 as a tax deduction.  You give this notice to your fund the earlier of before you lodge your tax return for 2013 financial year and 30 June 2014. If you miss this deadline your Notice will be invalid. Your notice will also be invalid if you rollover to another fund, take a cash lump sum or commence an income stream. If you partially rollover to another fund or taking a partial lump sum, you may be able to claim a deduction on part of the contribution. Contact your super fund to find out how much you can claim.
  5. If your Notice is valid, your super fund will issue an Acknowledgement advice to you confirming your intention to claim a tax deduction. At this point, your fund will deduct 15% tax of the contribution you’re intending to claim from the account balance and reclassify the contribution as concessional contribution. If your Notice is invalid for whatever reason, your super fund will not issue the Acknowledgement advice. The ATO only allows a tax deduction if you receive the Acknowledgement advice from your fund.
  6. When completing your tax return, you answer yes to making personal contribution and claim the amount as a tax deduction.  
  7. The ATO assesses your tax return and notes the advice they receive from your fund as per Point 3 above that you did make the personal contribution.

This information is for your guide only and not an advice. If you need advice as to whether or not claiming personal superannuation contributions as a tax deduction is appropriate for you, we recommend that you seek an advice from a qualified accountant.

We welcome any comments you may have about this article.