Question: If I get a government co-contribution, am I still able to claim that part of my personal contribution as a tax deduction?

In a recent article we went over the benefits of receiving a superannuation co-contribution and who is eligible to receive one.

Part of the eligibility criteria is that you must have made an after-tax (non-concessional) contribution to super.

If you subsequently elect to claim a tax deduction on your contribution, this changes it from a ‘non-concessional’ contribution to a ‘concessional’ contribution.

This means you would lose eligibility to receive a co-contribution.

This is why a co-contribution is only paid after you have lodged your income tax return for the previous financial year.

Therefore, you need to weigh up the benefits of receiving a co-contribution versus the benefit of receiving a tax deduction.

In most instances, provided you meet the rest of the eligibility criteria, you are best to maximise your co-contribution first.

You also have the option of claiming a tax deduction on only part of the contribution.

For example, if you have contributed $3000, you could claim a tax deduction on $2000, in which case this amount would be classified as a concessional contribution, and leave the remaining $1000 as a non-concessional contribution so you can potentially obtain a co-contribution payment.

It’s best to speak with your super fund or accountant to work out your optimal strategy.

Question: Hi, previously you have stated … ‘Contributions to super that you then claim a tax deduction for via your income tax return.’ Can you explain what this is, how it works, and how do I claim this? Thanks Davo

Personal tax-deductible contributions to super were previously only available to self-employed or substantially self-employed individuals.

However, they are now available to anyone who is eligible to contribute to super and who has an income tax liability.

Firstly, it’s important to consider whether it’s worthwhile to claim a tax deduction on your contribution.

These contributions attract a contributions tax of 15 per cent, so if you are paying tax at a higher marginal tax rate then the deduction may be worthwhile.

From a tax perspective, they work in the same way as salary sacrifice contributions by reducing your taxable income.

That is, for every dollar you either salary sacrifice or put into super as a personal tax-deductible contribution, this reduces your overall taxable income for that specific financial year. The super fund will then take 15 per cent of this contribution as tax and pass it on to the ATO.

The main differences are that with salary sacrifice you contribute a small amount per pay packet, whereas a tax-deductible contribution is generally made in a lump-sum contribution.

The maximum you can claim in a financial year is $25,000 for the 2020-21 financial year (excluding using the ‘Carry Forward’ provisions). However, this includes any contributions your employer is putting into super on your behalf as well.

The other important difference is that you must meet the following criteria otherwise your tax deduction may be denied:

• Be aged under 75. And if you are aged over 67, you must meet a work test
• Make an after-tax personal contribution to a complying superannuation fund
• Submit a valid form to your superannuation fund – This is known as a Notice of intent to claim or vary a deduction for personal super contributions. It must be submitted to your super fund within specified timeframes. You can either use a form from your super fund or one from the ATO
• Receive acknowledgement from the super fund trustee before claiming a tax deduction – If you are intending to make a withdrawal, rollover, or start an income stream from your super fund, you must wait for this acknowledgment first
• Claim a deduction in your tax return – ensure the amount claimed does not exceed the amount stated in the notice of intent and does not exceed your assessable income less all other deductions.

Should you require further help or personalised advice, please seek assistance from a tax adviser or financial planner.

Craig Sankey is a licensed financial adviser and head of Technical Services & Advice Enablement at Industry Fund Services.

Disclaimer: The responses provided are general in nature, and while they are prompted by the questions asked, they have been prepared without taking into consideration all your objectives, financial situation or needs.

Before relying on any of the information, please ensure that you consider the appropriateness of the information for your objectives, financial situation or needs. To the extent that it is permitted by law, no responsibility for errors or omissions is accepted by IFS and its representatives. 

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