Tax deductible superannuation contributions
TB 35 | TECHNICAL SERVICES | ISSUED ON 29 OCTOBER 2014
ADVISER USE ONLY
VERSION 1.1
Summary
Employers and certain individuals can claim a tax
deduction for contributions to superannuation. To claim
a tax deduction, employers and individuals must satisfy
certain conditions.
One condition is that the individual must give to the
trustee of the fund a notice of intent to claim the
deduction. This must be given, where relevant to the
client’s circumstances, before:
•
the client commences an income stream with either
all or part of the contribution
Employer contributions
Employers can claim a tax deduction for contributions
made for employees who are:
•
engaged in producing assessable income of the
employer; or
•
Australian residents, engaged in the employer’s
business; or
•
considered employees for Superannuation
Guarantee purposes.
Contributions which are tax deductible include:
•
the client withdraws or rolls over benefits (which
include the contribution)
•
Superannuation Guarantee contributions (no age
limit applies)
•
the client gives the trustee a splitting contributions
application.
•
voluntary employer contributions (including those
made under an effective salary sacrifice
arrangement) made for an employee, on or before
the 28th day of the month following the month in
which the employee turns 75
•
post age 75 contributions required to be made under
an industrial award, determination or notional
agreement preserving State awards. An Australian
Workplace Agreement, collective agreement or
preserved state agreement under the Workplace
Relations Act 1996 is not an award or determination.
Or in any other case, the earlier of:
•
when the client lodges their tax return; or
•
the end of the financial year following the year in
which the contribution is made.
Tax deductions reduce the amount of income that is
subject to tax. Making tax deductible contributions to
superannuation can assist eligible individuals to manage
their tax liability whilst increasing their retirement
savings in a tax effective environment.
Non-residents must consider what income is assessable
in Australia, as a deduction is only allowed to the extent
that it reduces income which is assessable
in Australia.
Employer and personal tax deductible superannuation
contributions count towards an individual’s concessional
contribution cap. Therefore it is important for employees
(who satisfy the 10% rule) to consider the amount of
employer contributions (including SG and salary
sacrifice) made on their behalf before making a personal
tax deductible contribution.
For information on personal superannuation
contributions refer to Technical Bulletin 59 –
Contributions.
Personal superannuation contributions
Individuals who meet certain conditions may claim a full
tax deduction for personal superannuation contributions.
Typically they are:
•
sole traders or partners in a partnership;
•
employees who satisfy the 10% rule; and
•
persons under age 65 (that is, are eligible to
contribute to super) receiving pension and/or
investment income only.
Personal deductible contributions are made to provide
superannuation benefits for the individual making the
contribution (or in the event of their death, to their
SIS dependants).
2
The following types of contributions are not
tax deductible:
•
rollover superannuation benefit
•
foreign super fund transfer
•
family and friend contribution
•
spouse contribution
•
government co-contribution
•
small business CGT retirement exemption
contribution for individual under age 55.
Conditions for claiming a tax deduction
include:
The contribution is made on or before the 28th day of
the month following the month in which the person
turns 75.
Example 1
John satisfies the work test and turns age 75 on
12 July 2014. The contribution must be made by
28 August 2014 to claim a tax deduction.
‘Maximum earnings as employee’ (10% rule)
If, in the year in which the contribution is made, the
person is an employee (for Superannuation Guarantee
purposes), then the sum of assessable income grossed
up by reportable employer superannuation
contributions and reportable fringe benefits from that
employment is less than 10% of total:
•
assessable income
•
reportable employer superannuation contributions
•
reportable fringe benefits.
David does not receive income from being an employee
or from carrying on a business. Therefore he is not
entitled to a tax deduction for personal superannuation
contributions.
If David had turned 18 by the end of the financial year,
there would be no requirement for deriving income from
carrying on a business or employment and he would be
eligible to claim a tax deduction.
The person must give a written notice of their intention
to claim a tax deduction to the trustee of the fund by
the date their tax return is lodged or the end of the
next financial year, whichever is earlier. The trustee
must have given an acknowledgement of receipt of
the notice.
Example 4
Alexis makes a contribution to superannuation in the
2013/14 financial year and intends to claim a tax
deduction for the contribution. She lodges her tax return
on 31 October 2014. As this is before the end of the next
financial year (30 June 2015) she must provide a written
notice to the trustee of the fund of her intention to claim
a tax deduction by 31 October 2014.
If Alexis were to commence a pension or roll over all her
benefits to another fund, she needs to provide the notice
to the fund before this occurs.
Note: If the person has died, the executor of their estate
may give a notice of intent to claim a deduction to the
fund. The same timeframes apply ie must be given
before the deceased’s final tax return is lodged.
Maximum earnings as employee
(‘10% rule’)
Example 2
If, in the financial year in which the contribution is made,
an individual is an employee for SG purposes, they must
satisfy the 10% rule. Refer to Technical Bulletin 13
Superannuation Guarantee for information on who is an
employee for SG purposes.
Anne runs her own business as a sole trader and works
part-time for an employer. Her assessable income from
part-time employment is $5,000 pa and she salary
sacrifices to superannuation $1,000 of her wages. In
addition, she earns $60,000 pa as a sole trader.
Reportable employer superannuation contributions are
added to assessable income and reportable fringe
benefits when calculating the
amount of:
Total assessable income plus reportable employer
superannuation contributions for the year is $66,000.
Anne can claim a tax deduction for personal
superannuation contributions as her assessable income
from employment and reportable employer super
contributions ($6,000) is less than 10% of her total
assessable income and reportable employer
superannuation contributions ($66,000).
If the person is under age 18 (at the end of the year)
they must have derived income from carrying on a
business or from being an employee.
Example 3
David has turned 17 in the current financial year and
has a portfolio of investments which earn $12,000
per annum. He has a capital gains tax liability which
he wishes to reduce by making a contribution to
superannuation and claiming a tax deduction.
•
earnings as an employee
•
total income.
Reportable employer superannuation
contributions
Reportable employer superannuation contributions are
contributions made on behalf of an individual by their
employer (or an associate of their employer) where
either the:
•
individual has the capacity to influence the size of the
contribution (‘salary sacrifice contributions’); or
3
•
individual has the capacity to influence the way it is
made so that their assessable income is reduced*
•
date their tax return is lodged for the relevant year
that the contribution was made; or
•
end of the financial year following the financial year
in which the contribution was made.
*
Generally this second category captures salary
sacrifice contributions made to a defined benefit fund,
for example, the rules of a defined benefit fund may
require members to make after tax contributions.
Instead of making after tax contributions, the fund
rules allow and the member chooses to salary sacrifice
the equivalent grossed up amount.
Other payments attributable to employment
You should also consider other types of payments an
employee or former employee may receive. First, you
should ask the question, ‘is the client an employee at
any time during the year in which the contribution is
made?’ An employee on paid leave during a financial
year (even if it is for one day) would be treated as
having been an employee for that year, even if they
don’t physically go to work at any time during
that year.
If the answer is yes, then the following types of
payments attributable to that employment, count
towards the 10% test:
•
•
assessable amount of lump sum payments on
termination of employment eg annual leave, long
service leave, employment termination payments
worker’s compensation payments.
If employment ceases in June and lump sum payments
of annual leave, long service leave and employment
termination payments are not paid until the next
financial year (ie from July) those payments do not
count towards the 10% test. Such payments are not
attributable to employment in the income year they are
assessable. This would apply regardless of the person
becoming employed later on in that financial year.
A client in this situation may need to provide
information to the ATO to exclude these payments
from the 10% test and ensure a deduction is allowed
(if eligible).
Trust distributions
When an individual receives a capital gains distribution
from a trust, the grossed up amount adds to assessable
income for the 10% rule and not the amount after
applying the 50% discount.
Claiming a tax deduction
Deductions can only be claimed for the financial year
when the contribution is made.
The ATO’s discretion to reallocate concessional
contributions to different financial years only applies to
the concessional contributions cap and not the ability to
claim a tax deduction.
Notice of intent to claim a tax deduction
(‘section 290-170 notice’)
To obtain a deduction for personal contributions, a
person must give a written notice of intent to claim a
tax deduction to the trustee of the fund that accepted
the original contribution and receive an
acknowledgement of the notice from that trustee.
The notice must be provided by the earlier of the:
Most superannuation funds have their own deduction
notice which a client can complete and return to the
fund. Alternatively the ATO have a standard form titled
‘Notice of intent to claim or vary a deduction for personal
super contributions’ which is available to download from
the ATO website: Deduction for personal super
contributions
Invalid notices
The notice is not valid if the:
•
fund has begun to pay a superannuation income
stream based in whole or part on the contribution
•
fund no longer holds the superannuation
contribution (eg if the benefits have been withdrawn
or rolled over)
•
contribution was covered by a previous notice
•
fund rejects the notice because the tax payable in
respect of the notice is greater than the interest in
the fund
•
individual has given a contributions-splitting
application in relation to the contribution to the
trustee of the fund.
Fund has begun to pay a superannuation
income stream
A tax deduction cannot be claimed for a contribution that
has been used to commence an income stream. This is
because the contribution has been taken into account
when determining the tax free and taxable proportions of
the income stream.
Example – invalid notice as contribution used
to commence income stream
Philip (57) is a sole trader and made a personal
contribution to superannuation of $20,000. He intends to
claim a tax deduction for the entire contribution. His
account balance is now $100,000.
After making the contribution, Philip commenced a
transition to retirement income stream with $80,000 }of
his superannuation benefits and hoped to use the
remaining $20,000 to claim a tax deduction. At the
end of the financial year, Philip submits a notice of intent
to claim a tax deduction to his superannuation fund in
respect of the $20,000 contribution. The superannuation
fund rejected this notice because part of the contribution
has been used to commence an income stream.
On the income stream application form, the client
may be asked whether they intend to claim a tax
deduction for personal contributions made to the fund
being transferred. In addition to completing this
question, notice of intent to claim a tax deduction
must be submitted to the fund where the client made
the contribution.
Where a client has contributed to a super fund with the
intention of claiming a tax deduction for all or part of
the contribution, the notice of intent to claim a tax
deduction must be provided before commencing an
income stream from that fund (including a transition to
retirement pension).
4
Fund no longer holds the contribution
(benefits have been withdrawn or rolled
over)
The trustee no longer holds a contribution, or at least
part of it, if the member has rolled over or withdrawn
a part of the superannuation interest. In this case,
a deduction notice cannot be given for the entire
contribution. A valid deduction notice is limited to the
amount of the personal contribution that remains in
the fund after the partial withdrawal or rollover,
calculated by:
Step 1 – Work out the tax free amount of
the rollover
Roll-over x Tax free component of interest
amount
before roll-over
Value of super interest
before roll-over
Step 2 – Work out the tax free component of the
remaining interest
Tax free component – Tax free component of
of interest before
the rollover (worked out
rollover
in Step 1)
Step 3 – Work out the remaining amount of the
personal contribution
Tax free component of x Personal contribution
remaining interest
Tax free component
(worked out in Step 2)
of interest before
roll-over
A valid notice of intent to claim a tax deduction can be
given for the amount worked out in Step 3.
Example – fund no longer holds the
contributions as benefits are fully
rolled over
Craig (52) makes a personal contribution into the ABC
Super Fund with the intention to claim a tax deduction.
During the year, Craig becomes unhappy with his
provider and decides to roll over the account into the
XYZ Super Fund. Craig does not provide the ABC Super
Fund with a notice of intent to claim a tax deduction
before the rollover.
Step 1 – Work out the tax free amount of
the rollover
Roll-over x Tax free component of interest amount
amount
before roll-over
Value of super interest
before roll-over
= $50,000 x $50,000 / $80,000 = $31,250
Step 2 – Work out the tax free component of the
remaining interest
Tax free component – Tax free component of
of interest before
the rollover (worked out
rollover
in Step 1)
= $50,000 – $30,000
= $20,000
Step 3 – Work out the remaining amount of the
personal contribution
Tax free component of x Personal contribution
remaining interest
Tax free component
(worked out in Step 2)
of interest before
roll-over
=$20,000 x $30,000 / $50,000
=$12,000
Ralph lodges a notice with the intention to claim a
deduction for the $30,000 contribution. The notice is not
valid as the super only holds $12,000 of the original
personal contribution. Ralph can only lodge a valid
deduction notice for an amount up to $12,000.
A notice of intent to claim a deduction should be given
to the fund before commencing an income stream, or in
many cases, before withdrawing or rolling over benefits
to another fund.
Deduction limitations
Deductions for personal superannuation contributions are
limited to the individual’s:
Assessable income – deductions
In other words, personal superannuation contributions
cannot add to or create a tax loss.
At the end of the financial year Craig becomes even
more upset after realising that the XYZ Super Fund
cannot accept a notice of intention to claim a tax
deduction in respect of the amount rolled over.
In practice, it may be prudent to utilise an individual’s
tax free threshold, tax offsets and deductions where
available.
Craig should have provided the ABC Super fund with a
notice of intention to claim a tax deduction prior to
rolling over.
A deduction notice cannot be revoked. However an
individual can vary their deduction notice but only to an
amount less than the original notice (including to nil).
Alternatively if he wasn’t sure of his eligibility to claim a
tax deduction (or the amount to claim as a tax
deduction), he could remain with the ABC Super Fund
until his tax position became clear.
The variation notice must be provided by the earlier
of the:
Example – benefits are partially rolled over
Ralph (48) has a super fund valued at $50,000 with a
$20,000 tax free component. He makes a $30,000
personal contribution in March 2014. The fund balance
now holds $80,000 ($50,000 tax free component). In
June 2014, Ralph rolls over $50,000 leaving behind
$30,000 in the fund. The amount of the $30,000
contribution that remains in the fund after $50,000 is
rolled over is calculated as follows:
Variation notice
•
date the tax return is lodged for the relevant year
that the contribution was made; or
•
end of the financial year following the financial year
in which the contribution was made.
The notice can only be varied after this time if the
amount requested as a tax deduction was subsequently
5
disallowed by the ATO. This ensures that the ATO can
effectively manage an individual’s contribution caps.
A variation notice will be ineffective where the:
•
superannuation fund no longer holds the
superannuation contribution (eg if the benefits
have been withdrawn or rolled over)
•
fund has begun to pay a superannuation income
stream based in whole or part on the contribution.
Similar to the original notice, a variation notice may
be obtained directly from the super fund or the ATO
website (the ATO provide a single form to cover
both an original notice and a variation notice – see
link above).
Contribution splitting
Where an individual intends to claim a tax deduction for
a personal contribution which will be split with their
spouse, the notice of intent to claim a deduction must
be given before the splitting notice.
Concessional contributions count against the splitting
spouse’s concessional contributions cap not that of the
receiving spouse.
Non-resident taxpayers
Non-residents for tax purposes may claim a tax
deduction for personal superannuation contributions
according to the same rules as applies to residents.
However you need to consider what income is
assessable in Australia when applying the 10% rule
or working out the limit on the deduction which may
be claimed.
10% rule
‘Assessable income’ from employment is included in the
10% rule. For a tax resident, income from overseas
employment is generally assessable in Australia
(although certain aid/charity income may be exempt).
Therefore most tax residents who are employed
overseas may not satisfy the 10% rule.
For a non-resident, overseas employment income is
generally not assessable income Australia. Therefore
most non-residents who are employed overseas would
satisfy the 10% rule. A non-resident with assessable
income from other sources (eg. a direct investment in
Australian property) may be able to claim a deduction
for personal superannuation contributions against
this income.
Example – non-resident and 10% rule
Luigi (50) is a non-resident taxpayer and has sold an
Australian investment property. Luigi wishes to make a
deductible superannuation contribution to reduce the
capital gain from the sale of the investment property.
As Luigi engages in employment overseas, Luigi must
satisfy the 10% rule.
Luigi’s Australian sourced income includes:
•
$13,000 rental income
•
$5,000 interest and
•
$100,000 assessable capital gain.
We disregard all foreign sourced income (including his
overseas employment income).
Luigi’s total assessable income and reportable fringe
benefits is $13,000 + $100,000 = $113,000. The interest
income is subject to non-resident withholding tax (not
included in an Australian tax return).
Luigi has no assessable income and reportable fringe
benefits (included in an Australian tax return) that comes
from employment as an employee for Super Guarantee
purposes. Therefore, Luigi satisfies the 10% rule
($0 / $113,000) and can claim a tax deduction for a
personal contribution.
Deduction is limited to income assessable
in Australia
Non-residents are generally only allowed deductions to
the extent the expenses are incurred in producing
assessable income. Many types of income (including
realised capital gains relating to taxable Australian
property distributed from a trust) may be subject to
non-resident withholding tax or are not assessable in
Australia and therefore not included in an Australian tax
return. For example, all foreign sourced income
(including overseas employment income) is not taxed in
Australia and dividends, interest and most distributions
from managed funds are subject to non-resident
withholding tax. For more information, refer to Technical
Bulletin 47 – Non-resident taxation.
A deduction is not required if there is no assessable
income in the Australian tax return. Furthermore, the
ATO would also deny the deduction.
Consider tax implications in country
of residence
Before making a personal superannuation contribution
with the intention of claiming a tax deduction, it is
important to understand both the Australian tax
implications and the tax implications of the country of
residence to determine whether this course of action
provides a benefit.
If a non-resident derives assessable income in Australia,
a personal deductible contribution can reduce the
Australian tax that may otherwise be payable. An
example of income which is assessable in Australia is
rental income from a property situated in Australia.
However, the country of residence may still tax this
income. Where the country of residence has a double tax
agreement with Australia, the client is generally entitled
to a tax offset for Australian tax paid (up to the amount
of tax payable in the country of residence).
Claiming a tax deduction for personal super contributions
resulting in no Australian tax payable by the nonresident, may actually increase the imposition of tax in
the country of residence. Note – tax payable on the
deductible superannuation contribution is not tax paid by
the non-resident taxpayer.
For additional information on non-resident taxation refer
to Technical Bulletin 47 – Non-resident Taxation.
Additional example
Retiree receiving pension and investment
income, claims deduction to reduce capital
gains tax
Anthony (62) is retired and derives income from a
superannuation pension and a personal investment
portfolio. Anthony’s only other income for the financial
6
year is an assessable capital gain of $100,000. Anthony
wishes to reduce the tax payable on this capital gain.
As Anthony is less than age 65 he can contribute to
superannuation. In addition, Anthony does not engage
in any employment activities, therefore, he can also
claim a tax deduction for the contribution. A personal
deductible contribution up to his concessional
contributions cap could considerably reduce Anthony’s
personal taxation liability.
Concessional contributions
Concessional contributions generally include:
•
employer superannuation contributions
(eg Superannuation Guarantee (SG), salary
sacrifice and any fund costs paid by the employer
such as administration fees and insurance
premiums)
•
personal superannuation contributions which have
been claimed as a tax deduction
For a full list of concessional contributions, refer to
Technical Bulletin 59 – Contributions.
Concessional contributions cap
The concessional contributions cap should be
considered when recommending personal deductible
contributions to super. The cap is not administered as a
limit on tax deductions, instead it limits the amount of
contributions which receive concessional tax treatment.
Individuals who meet certain conditions or employers
making contributions for an employee can generally
claim a tax deduction for the entire amount of
concessional contribution made.
The concessional contributions cap is:
Financial
year/s
Concessional contributions cap
2014/15
Under 50: $30,000
Age 50 or over*: $35,000
2013/14
Under 60: $25,000
Age 60 or over^: $35,000
* This cap applied if aged 50 or over on 30 June 2015.
^ This cap applies if aged 60 or over on 30 June 2014.
An individual’s total concessional contributions count
against the concessional contributions cap regardless of
the source.
For further information on the concessional
contributions caps and the implications of breaching the
cap, refer to Technical Bulletin 59 – Contributions.
This Technical Bulletin has been produced by ANZ Wealth Technical Services and is intended for the use of financial advisers only. It is current as at the date of
publication but may be subject to change. This publication has been prepared without taking into account a potential investor's objectives, financial situation or
needs. Before making a recommendation based on this publication, consider its appropriateness based on the client’s objectives, financial situation and needs.
ANZ Wealth Technical Services is not a registered tax agent under the Tax Agent Services Act 2009. Your client should refer to a registered tax agent before
relying on information in this publication that may impact their tax obligations, liabilities or entitlements.