Firstly, a very quick history lesson.

If we go back in time to before 1 July 2017, the only people that could generally claim a tax deduction for their personal superannuation contributions were those that were primarily self-employed. That is, they were sole traders or partners in a partnership.

Employed people could only claim a tax deduction for personal superannuation contributions if less than 10% of their assessable income was derived from an employment arrangement with an employer.

Fast forward to today.

Amongst the many superannuation and tax changes that took effect from 1 July 2017, was the removal of the “less than 10% income test”.

From 1 July 2017, basically anyone could claim a tax deduction for their personal contributions provided they were able to use the tax deduction. That is, they had tax assessable income they could offset their tax deduction against.

But, like most things associated with tax and superannuation, there are rules that need to be followed to successfully claim a tax deduction for personal contributions.

Contribution caps and tax

When a tax deduction is being claimed for a personal contribution, the contribution is treated as a concessional contribution and is counted towards the concessional contribution cap of $27,500.

Being a concessional contribution, tax of 15% is deducted from the contribution. For high income earners, those with income^[1] of more than $250,000, an additional 15% tax is levied against concessional contributions.

In situations where a person has a total superannuation balance (i.e. the value of all money that have in the superannuation system at the previous 30 June) of less than $500,000, they are able to carry forward any unused portion of their concessional contribution cap that has accrued since 1 July 2018.

As a result, they may be able to make a personal tax deductible contribution of significantly more than $27,500 in a given financial year. This can be very useful when managing capital gains tax arising from the sale of assets such as an investment property.

Notice of intent

To be able to claim a tax deduction for personal superannuation contributions, a notice must be given to the superannuation fund informing them of the intention to claim a tax deduction.

Timing is critical.

The notice must be given no later than the day on which the income tax return for the year in which the tax deduction is being claimed is lodged, or by the end of the following financial year, whichever is the earlier.

In certain circumstances, a notice of intent will be invalid.

The circumstances include:

• the contributor is no longer a member of the fund the contribution was made to,
• the fund no longer holds the contribution – i.e. it has been withdrawn or rolled over to another superannuation fund, or
• the fund has commenced paying a pension with all or a part of the contribution.

Where a partial rollover is made, perhaps to pay for life insurance held with another superannuation fund, the tax deduction allowed will be scaled back unless the notice of intention to claim a tax deduction is submitted to the super fund before the rollover occurs.

Member’s age

One further aspect of claiming a tax deduction for personal contributions relates to the age of the contributor.

Recent changes mean that it is generally accepted personal superannuation contributions can be made by a person up until the 28th day of the month following that in which they turn 75, without having to satisfy any form of work test.

However, where a tax deduction is to be claimed for a personal contribution by a person aged from 67 to 75, they will need to have been gainfully employed or self-employed for a period of at least 40 hours, worked within a period of 30 consecutive days, in the financial year in which they intend to claim their tax deduction.

Alternatively, a personal deductible contribution can be made by a person that had a total superannuation balance of less than $300,000 at the previous 30 June and they met the work test in that previous financial year. This is referred to as the “extended work test exemption”  

Work test declaration

Before 1 July 2022, superannuation funds would have members aged from 67 to 75 make a declaration they had met the work test before personal contributions were accepted.

Now, the responsibility for ensuring the work test for personal tax deductible contributions has been met will rest with the Australian Taxation Office. It is expected that when a person aged 67 to 75 is claiming a tax deduction for their personal contributions, there will be a declaration they have met the work test included in their income tax return.

Each year we receive many enquiries from financial advisers whose clients have been denied a tax deduction for their personal contributions. This generally arises where a notice of intention to claim a tax deduction has not been submitted within the required time, or the notice is invalid because superannuation benefits have been withdrawn, rolled over, or a pension has commenced. Unfortunately, superannuation funds don’t have discretion to accept late or invalid notices.

Being able to claim a tax deduction for personal superannuation contributions can deliver significant tax savings. However, there is a minefield of technicalities to be navigated to ensure a tax deduction can be successfully executed.

If planning to make tax deductible contributions to superannuation, consider seeking assistance from a licensed financial planner or registered tax agent to ensure your deduction is successful.

^{[1] Income for this purpose includes adjusted taxable income, reportable fringe benefits, target foreign income, net investment losses, tax-free government pensions and benefits, and reportable superannuation contributions.}