Basically, tax deductions can be claimed by both employers contributing on behalf of their employees, and for the personal contributions of certain individuals. However, these individuals need to meet certain conditions.
When an employer makes a superannuation contribution for an employee (either because of their Superannuation Guarantee obligations, or through a correctly structured salary sacrifice arrangement), these contributions are tax deductible to the employer.
Note however, that they are only deductible up to the ‘concessional contributions limit’ of the employee (see article "How much of each contribution type is allowed").
Where an individual makes personal contributions to super, they can only claim a personal tax deduction in the following circumstances:
- They are self-employed. This means that no more than 10% of their total income (which includes assessable & exempt income + reportable fringe benefits) can come from an employer. For example, a doctor who has his own practice and also works part time at the hospital. The hospital work cannot amount to more than 10% of his total income. The limit of the deduction is the same as per above.
- Anyone else, who is eligible to contribute to super, who does not receive any other superannuation support i.e. no one else contributes to their super fund on their behalf. Hence, anyone who has not received employer or spouse contributions in a financial year (such as retirees or non working spouses), people who are not working, or those who are low income earners and don’t receive SGC contributions, may be entitled to claim a tax deduction on their personal super contributions.
Also note that all contributions that are claimed as a tax deduction will form part of the assessable income of the super fund, and hence be taxed at 15%. However, the fund may have sufficient deductible expenses or imputation credits from Australian equities to reduce this overall tax rate. See our article on ‘Contributions tax myth’ to see the real story on this, and how so called Contributions tax can be reduced or eliminated.
The contributor must notify the trustee of the SMSF how much of any contribution will be claimed as a tax deduction in the relevant financial year. The trustee must then acknowledge in writing to the member that they have received the deductible contribution notice.
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