Claiming a deduction for personal super contributions

Making a personal deductible contribution into super can be a great way to provide for your retirement and reduce your income tax liability at the same time. 

How do I make a personal deductible contribution?

A personal, deductible contribution is an after-tax contribution you make directly into your super fund that you can then claim as a tax deduction in your tax return.

Because a personal deductible contribution is funded from after-tax monies, you can make the contribution using any surplus cashflow or savings, an inheritance or proceeds from the sale of an asset.

Personal deductible contributions can be made regularly throughout the financial year, for example, if market timing is a concern. Alternatively they can be made towards the end of the financial year when you have a clearer position of your taxable income. 

How do I claim a tax deduction on my contribution?

There are some key conditions you must meet to claim a tax deduction for a personal deductible contribution. These include: 

• Be aged 18 years and under age 75

To make a personal deductible contribution, you must be eligible to contribute to super.

Generally, you are eligible to contribute to super if you are: 

• Under age 67 
• Age 67 – 74 and have met the ‘work test’, or 
• Age 67 – 74 and meet the requirements for the ‘work test exemption’

The ‘work test’ requires that you have worked at least 40 hours over a consecutive 30-day period in the financial year the contribution is made. 

The ‘work test exemption’ provides a one-year relief from the work test for recent retirees. It is available if: 

• you met the work test in the previous financial year  
• your ‘total super balance’ was below $300,000 as at the previous 30 June, and 
• you have not previously utilised the exemption (ie, the exemption can only be applied once in your lifetime).

Your ‘total super balance’ includes your accumulation accounts, retirement income streams, any rollover super benefits in transit between super funds on 30 June, and may also include certain limited recourse borrowing arrangements in self-managed super funds.

• Make a personal contribution to your super fund

If you claim a deduction for a personal contribution, the amount is included as a concessional contribution and counts towards your concessional contributions cap.

There is a cap on how much can be contributed as concessional contributions each year without incurring additional rates of tax. The concessional contribution cap for the 2021-22 financial year is $27,500.

You may be eligible to access a higher concessional contributions cap under the ‘catch-up concessional’ contribution rules. These rules can allow you to make extra concessional contributions in excess of the general concessional cap ($27,500) by utilising any unused concessional cap amounts from the previous five financial years (commencing from 1 July 2018). However, to be eligible, your total super balance must be less than $500,000 at 30 June of the previous financial year.

• Submit a valid ‘notice of intent’ form with your super fund

After you have made a personal contribution into your super fund, you’ll need to notify your super fund that you intend to claim a tax deduction by completing the ‘Notice of intent to claim or vary a deduction for personal super contributions’ form before lodging your tax return. This form is available on the ATO website. 

You’ll then get a letter back from your super fund acknowledging your intent to claim in writing. At this time, your super fund will tax the contribution at 15% because it will be classified as a concessional contribution.

Also note, you shouldn’t make any withdrawals, rollovers or start drawing a pension from your super before your notice of intent form has been lodged with and acknowledged by your super fund. Doing any of these things may reduce or invalidate some or all of your tax deduction. 

Thus it is important that you have received written confirmation from your super fund before you complete your tax return, withdraw or rollover money or start a pension with your super benefits.

• Have the paperwork ready when you lodge your tax return

Once the financial year is over, you can prepare and lodge your tax return using the written acknowledgement from your super fund that confirms your intention to claim and the amount you can claim.

It is also important to ensure the deduction claimed for your personal contribution in your tax return does not create a tax loss. This means your personal deductible contribution should be limited to your assessable income for the year, less any deductions. Your accountant can help determine how much you should contribute.

Other things to consider

Although personal deductible contributions can allow you to add to your super and claim a tax deduction, remember that you cannot access your super until you meet a condition of release such as reaching preservation age and retiring. Other eligibility conditions apply so contact your adviser for more information about whether this strategy is suitable to your circumstances.

For further information regarding personal deductible contributions, email us at administration@ventureprivateadvisory.com.au