Asgard Tech bulletins – April 2016 Eligibility and process for claiming tax deductions for personal super contributions made in 2015/16 1. In brief The finer points of the tax deduction rules need to be followed to ensure your clients don’t lose the ability to claim a deduction for their personal superannuation contributions. Not following the rules can lead to a loss of deduction and in some cases it can also lead to a breach of the contributions caps. This bulletin looks at the eligibility, requirements and processes which must be followed to: claim a personal tax deduction for personal superannuation contributions made in 2015/16 vary a previous personal tax deduction notice to reduce the amount of personal superannuation contributions for which a tax deduction is claimed claim a tax deduction for personal contributions if a partial withdrawal from superannuation is intended. 2. Eligibility to contribute to super In order to make a personal contribution to superannuation an individual needs to be aged: under 65 or 65 to 75 and satisfy the work test by being gainfully employed for at least 40 hours over 30 consecutive days in the financial year in which the contribution is made. Individuals who are turning 75 in the financial year (and meet the work test) must contribute before the 28th day of the month following the month in which they turn 75 (for example, if a person’s 75th birthday is in April, the contribution needs to be made by 28 May of the same year). 2.1 What is the right reason for making a personal contribution to super? The primary purpose for making any contribution to superannuation must be to obtain superannuation benefits for the member on retirement or for their dependants in the event the member dies. Importantly, any associated tax deduction should only be an ancillary or minor purpose, not the primary purpose, otherwise the ATO may deny the tax deduction.
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Asgard Tech bulletins – April 2016
Eligibility and process for claiming tax deductions for
personal super contributions made in 2015/16
1. In brief
The finer points of the tax deduction rules need to be followed to ensure your clients
don’t lose the ability to claim a deduction for their personal superannuation
contributions. Not following the rules can lead to a loss of deduction and in some cases
it can also lead to a breach of the contributions caps. This bulletin looks at the
eligibility, requirements and processes which must be followed to:
claim a personal tax deduction for personal superannuation contributions made in
2015/16
vary a previous personal tax deduction notice to reduce the amount of personal
superannuation contributions for which a tax deduction is claimed
claim a tax deduction for personal contributions if a partial withdrawal from
superannuation is intended.
2. Eligibility to contribute to super
In order to make a personal contribution to superannuation an individual needs to be
aged:
under 65 or
65 to 75 and satisfy the work test by being gainfully employed for at least 40 hours
over 30 consecutive days in the financial year in which the contribution is made.
Individuals who are turning 75 in the financial year (and meet the work test) must
contribute before the 28th day of the month following the month in which they turn 75
(for example, if a person’s 75th birthday is in April, the contribution needs to be made
by 28 May of the same year).
2.1 What is the right reason for making a personal contribution to super?
The primary purpose for making any contribution to superannuation must be to obtain
superannuation benefits for the member on retirement or for their dependants in the
event the member dies.
Importantly, any associated tax deduction should only be an ancillary or minor purpose,
not the primary purpose, otherwise the ATO may deny the tax deduction.
Asgard Tech bulletins – April 2016
2.2 What is the time period the contribution must be made in?
To be able to claim a tax deduction for personal contributions made in the 2015/16
financial year, an eligible person must ensure their superannuation fund has received
their personal contribution by Thursday 30 June 2016.
3. Who is eligible to claim a deduction for a personal contribution?
Tax law states that any individual can claim a deduction for their contribution provided
that either, they are not employee or, if they have been an employee during the year,
the ‘<10% test’ is met.
Effectively this means that a tax deduction can be claimed by:
a self employed person i.e. sole trader or a partner in a partnership,
a substantially self employed person provided that the total income1 they earn as
an employee is less than 10% of their total income from all sources for the
financial year in which the contribution is made or
a person who is not engaged in any employment activity during the financial year
aged 18 to 64 inclusive. Individuals under age 18 at the end of the financial year
cannot claim a tax deduction unless they earned income as an employee or
business operator in that financial year. Unemployed individuals aged 65 and over
would not meet the work test, so would be unable to contribute to super.
Further discussions on the ‘<10% test’ and the definition of ‘total income’ can be found
in the Appendix to this Bulletin.
3.1 Deduction may be limited
Eligible persons are able to claim a full tax deduction for the total amount of personal
contributions made to superannuation for a financial year. Note, however, that the
deduction cannot exceed the level of the individual’s taxable income for that financial
year.
3.2 How is the contribution treated for contribution cap purposes?
Personal contributions for which a personal tax deduction has been claimed are
included in an individual’s concessional contributions cap.
1 Total income = assessable income plus reportable fringe benefits plus reportable employer
superannuation contributions.
Asgard Tech bulletins – April 2016
4. Policy definitions and ancillary benefits
Individuals eligible to claim a deduction for personal contributions need to notify their
superannuation fund of their intention to claim the deduction, in an approved form,
within a restricted time period. If the notice is valid, the fund will provide the individual
with an acknowledgement of receipt of the notice which allows the individual to claim
the deduction in their tax return.
An individual cannot claim any deduction on their personal superannuation
contributions, in their tax return, unless acknowledgement of receipt of their notice is
received from their fund.
A copy of the ATO’s approved form, Notice of intent to claim or vary a deduction for
personal super contributions, is available on the ATO website.
Many superannuation funds also produce their own branded version of this ATO form.
4.1 Time-frame for lodging a notice
Individuals wishing to claim a tax deduction for personal contributions made during the
2015/16 financial year must:
a) meet the eligibility criteria to claim a deduction (outlined earlier) and
b) complete and return their Notice of intent to claim or vary a deduction for personal
super contributions to their superannuation fund by the earlier of:
the day they lodge their income tax return for the 2015/16 financial year or
30 June 2017.
Note, however, that many individuals will need to notify their superannuation fund prior
to the above date as their ability to claim a tax deduction will cease on the day:
they cease to be a member of the fund,
the superannuation fund trustee no longer holds the contributions or
the superannuation fund trustee begins to pay an income stream based in whole
or part on the contribution (i.e. when any amount of the member’s superannuation
benefit is used to commence an income stream within the same fund).
In addition, individuals should also notify their superannuation fund prior to making a
partial withdrawal as their ability to claim a deduction will be limited after a partial
withdrawal.2
2 For details of the treatment of tax deduction notices provided after a partial withdrawal– see section
7, Notices provided after partial withdrawals, of this bulletin.
Brendan was retrenched from his employer on 7 July 2015 and shortly after he decided
to establish a lawn mowing business as a sole trader. For the period from 1 – 7 July
2015, his employer paid him the following including termination payments:
Gross salary $2,000
Reportable employer super contributions $ nil
Reportable fringe benefits $ nil
Accrued Annual Leave $3,000
Tax-free redundancy payment $12,000
Brendan’s assessable income from employment for 2015/16 is $5,000 (note the tax-
free redundancy payment is not assessable income).
Brendan makes a personal contribution to superannuation during the 2015/16 year.
To be eligible to claim a deduction on the personal contribution, the sum of Brendan’s
assessable income from all sources, plus reportable fringe benefits plus reportable
employer superannuation contributions for 2015/16 needs to be more than $50,000.
This is because his total income from employment is $5,000 and this must be <10% of
his ‘total income’ for deduction purposes
12.3 Assessable income from employment
A reportable employer superannuation contribution is an amount contributed by an
employer in respect of a particular financial year (regardless of when the contributions
are actually made), where the individual has or has had or might reasonably be
expected to have or have had, the capacity to influence the:
a) size of the amount or
b) way the amount is contributed so that their assessable income is reduced.
The following table provides a general overview of what types of contributions would
and would not be considered to be RESC.
Type of contribution RESC?
Salary Sacrifice Yes
Superannuation Guarantee No
Award No
Asgard Tech bulletins – April 2016
Example 13: Impact of the inclusion of RESC on the self employed
Jack, aged 45, largely works freelance (as a sole trader) but is employed 1-2 days a
week with a professional photography studio. In 2015/16 Jack’s earnings include:
Salary $ 5,000
SG Contributions $ 450
Salary sacrifice contributions (RESC) $ 4,200
Reportable fringe benefits (RFB) $ 3,800
Freelance income $70,000
Assessable income + RFB + RESC = $83,000
(Assessable income = salary plus freelance income)
Jack will be ineligible to claim a tax deduction for any personal contributions made to
superannuation as he will fail the <10% test. The percentage of assessable income,
Contribution required under an industrial agreement
No, provided the agreement is an arm’s length agreement and the employee had no involvement in its preparation aside from voting on it.
Employer payment to the default superannuation fund to pay for expenses of the fund (such as insurance premiums)
Yes
Employer contribution in excess of the SG requirement made due to payroll system limitations.
No
After tax contributions made by an employer on behalf of an employee (e.g. via payroll deduction)
No
Employer contributions to a defined benefit fund
Generally no, as the amount of the contribution is usually determined by the fund’s actuary. If the employee can elect to make salary sacrifice contributions these would be included.
Employer contributions made on behalf of an employee as required by an industrial instrument or rules of the superannuation fund
No, provided that and the employee had no involvement in the content of that industrial instrument or the rules of the superannuation fund
Asgard Tech bulletins – April 2016
RFB and RESC attributable to employment as an employee will not be less than 10% of
$83,000.
(Salary + RFB + RESC)/Total Income
= ($5,000 + $3,800 + $4,200) / $83,000 = 15.7%.
FOR GENERAL INFORMATION ONLY
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