How to claim tax deductions on personal super contributions

With the annual tax return season now in full swing, ING’s Rudy Haddad* offers advice on how to claim a tax deduction for personal superannuation contributions.

“It is important that taxpayers are aware of the time restrictions that apply to submitting tax notices for personal deductible superannuation contributions,” said Mr Haddad.

“Previously a taxpayer could potentially submit a request to claim a tax deduction years after making the superannuation contribution. Now under Better Super, such a claim may be dismissed if this is not submitted in a timely manner.

“The Better Super rules have introduced  three time restrictions for submitting tax notices to a superannuation fund's trustee. These new restrictions are in addition to the pre-existing time restrictions which featured under the former superannuation environment.”

Qualifying taxpayers wishing to claim a tax deduction for personal superannuation contributions must submit a tax notice to the superannuation fund which received the contributions. The tax notice indicates the taxpayer’s intention to claim the tax deduction and it must be submitted within specified time limits. Once the tax notice has been presented and subsequently acknowledged by the superannuation fund’s trustee, the taxpayer can include the tax deduction in their income tax return.

For personal contributions made on or after 1 July 2007, eligible persons must submit their tax notice to the superannuation fund's trustee before the earlier of the following events:

(a) submitting the income tax return for the financial year in which the contributions are made (This is a new restriction. Under old laws, taxpayers were potentially able to amend a previously submitted income tax return in order to claim the tax deduction, provided the contributions were still in the original fund. This is not possible under the new laws which means eligible persons will need to submit their tax notice to the superannuation fund trustee before they file their income tax return.);

(b) end of the financial year which follows that in which the contributions are made (This is also a new restriction. Under old laws, taxpayers were able to submit a tax notice years after the contribution was made, provided the contributions were still in the original fund. This is not possible under the new laws.);

(c) commencing a pension with all or part of the contributions (This is yet another new restriction. Under old laws, taxpayers were potentially able to commence an allocated pension within the same fund and were able to claim the tax deduction to the extent the contributions were still in the fund. This is not possible under the new laws.);

(d) cashing the contributions;

(e) rolling over the contributions;

(f) submitting a contributions-splitting application in respect of the contributions.

How much can be claimed without incurring tax penalties?

An annual cap of $50,000 is presently in effect for those under age 50 as at the last day of the financial year in which the contribution is made.

A higher transitional limit of $100,000 is currently available to individuals who are at least age 50 as at the last day of the financial year in which the contribution is made.

Nonetheless, tax deductions on personal superannuation contributions cannot be claimed to the extent they will create an income tax loss in the financial year in which the contribution is made.

Who can claim?

Broadly speaking, individuals looking to make a personal deductible superannuation contribution must be able to contribute to a superannuation fund as well as meet a 10 per cent income test.

The age cut-off for making superannuation contributions is the 28th day in the month following that in which the individual turns age 75. From age 65, contributions can only be made once the gainful work requirements have been satisfied.

The 10 per cent income test requires less than 10 per cent of a person’s assessable income plus reportable fringe benefits to be ‘attributable to’ eligible employment. Eligible employment is the engagement of work or holding of an office which results in the taxpayer being classed as an employee under superannuation guarantee law (irrespective of whether or not the superannuation guarantee is actually payable).

“Personal superannaution contributions can be a smart way of buildng a healthy retirement nest egg.

“Tax deductibility of these personal superannuation contributions is an added incentive to save more through superannuation,” said Mr Haddad.

*Rudy Haddad is National Manager for Technical Services and manages a team of superannuation and tax specialists.