Tax Deduction for super payments

Hello tax experts, I have a question for you today.

So I am self employed and own a business. My business paid 9.5% super for me for the income I draw from the company. I then paid some more into my super contribution myself and plan to deduct it from my tax because total contribution is still less than 25k.

My accountant tells me I can't do that. I should have paid the extra super contribution from the company on my behalf to make it pre tax. But I dont think thats required. I think I can still deduct it as its allowed according to this link.

Claiming deductions for personal super contributions

My super is with ING and was paid through BPAY. To clarify I understand employer contribution has a different BPAY code than salary sacrifice.

 

I'd be listening to your accountant. I suspect that technically, the super being paid is not employer super, as you are self employed, probably a sole trader.

I would clarify the issue with your accountant.

 

You can claim a deduction for personal contributions from super - but I think only from 1 july this year.

 

From the link I pasted

for contributions made on or after 1 July 2017, you made the contributions to your fund that was not a

• Commonwealth public sector superannuation scheme in which you have a defined benefit interest
• Constitutionally protected fund (CPF) or other untaxed fund that would not include your contribution in its assessable income
• super fund that notified us before the start of the income year that they elected to either treat all member contributions to the
  • super fund as non-deductible
  • defined benefit interest within the fund as non-deductible

The super was paid in July 2018.

Its a Pty Ltd. I am not a sole trader

 

Look at example 1 in your link

 

Did you:

• notify your fund of the amount you intended to claim as a deduction by obtaining the Notice of intent to claim or vary a deduction for personal contributions form (NAT 71121)?

Did:

• your fund acknowledge your notice of intent to claim a deduction?

 

Here is the legislation:
s 290-150 ITAA97
http://www5.austlii.edu.au/au/legis/cth/consol_act/itaa1997240/s290.150.html

 

This one is an issue of timing...ie when the superfund received your personal contribution, the transaction date it received the funds.

To claim deduction in 17/18 tax year the fund must have received it by 30th June 2018. 29th this year as 30th was a Saturday.

If payment was received by Superfund after 30 June 2018, should be able to claim in 18/19 year assuming you meet all other conditions.

 

it was 1 july 2017

 

@Perthguy hit the nail on the head - AFAIK, if it was a personal contribution for which you intended to claim a deduction, you needed to advise the fund and received acknowledgement of same.

Timing is the other issue.

 

The payment was received well before the deadline e.g. 30th June.

Yes I did but not in the traditional sense. I made the personal contributions to the personal contribution bpay code provided by the fund. So they know this is going to be personal contribution. The distinction is to avoid that paperwork but I will try to check with the fund again.

 

The Bpay code does NOT trigger a taxable personal contribution eligible for a tax deduction. If the deduction is claimed prior to the notice formalities being completed the ATO will later detect this and cancel the deduction and it cannot be corrected.

The deduction notice requirements in law contain a requirement that the taxpayer has obtained the notice prior to lodgement. Once lodged you cannot amend to correct it according to past ATO practice.

INCOME TAX ASSESSMENT ACT 1997 - SECT 290.170 Notice of intent to deduct conditions

 

Update:

I called my super fund to find out what can I do to fix this. And I found that the contribution I made was not a personal contribution but a salary sacrifice instead which means they have already deducted the correct 15% tax. They can however move that contribution to personal contribution category and then I can deduct it in my personal tax but that is not required I guess.

I think it is easier to just add that transaction to my business expense since I own the business and that will fix it.

 

in this case the company would have claimed a deduction for this?

 

The company tax returns have not been lodged yet so that can be added there.

 

That is incorrect. You cannot claim a deduction. It is a concessional contribution made by the employer. They will claim the deduction. The fund cannot change its classification.

Salary sacrifice produces the similar tax effect in any case. eg : Employer reduced salary (shown on PAYG summary) and upped super. Your tax return will be same as if you earned higher salary then claimed a deduction.

 

I am the employer as I am self employed so I have the option to either deduct it from the company tax or my personal tax.

 

Sounds like the company may be the employer, not you?

 

No. A self employed person cannot "pay themself" eg a sole trader or partner in a partnership. If you have a company it is your employer and is bound to pay super of 9.5% min. You arent self employed in that situation. You are an employee. However lenders may call you "self employed" but its not technically correct.

As I indicated above it makes no difference if the company or you claim the deduction based on salary sacrifice. It has the same outcome. Its a complex thing to explain but the individuals marginal tax rate is the tax benefit (less 15%) even if the company claims a 27.5% tax deduction.

eg
1. Fred earns $110K from his employer. His employer also pays 9.5% super ($10450)
2a. Fred gets a bonus and extra super is paid as salary sacrifice of $10K. So Freds PAYG summary will still show $110K salary and Freds tax return is unchanged. The employer claims $110K wages and super of $21,450. One minor trap to this basis is that the reportable super contribution of $10K will be shown on the PAYG summary and this could affect Centrelink calcs and some benefits IF this is relevant. But taxable income is unaffected.

or
2b. Fred gets a $10K bonus and his employer pays him $120K. Then Fred claims the $10K as a personal deductible contribution. The employer claims deductions for wages of $120K and super of $10,450. . Freds taxable income is still $110K.

In both cases the total employer deductions are the same and Freds taxable income is the same.

The ATO has a new process this year to identify and check 100% of deduction claims for super (they said this last month). All funds report taxed contributions for each member and when they report to the ATO the ATO will eventually data match this v's the tax return to identify any issues.

 

This would make for a great monty python sketch