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Superannuation Advice about Tax Deductions for the Self-Employed

If you are self-employed, the prospect of figuring out how to claim your super contributions is likely to give you a headache. But when you know the criteria by which self-employed super contributions are governed, it becomes much easier to claim your contributions.

The Australian Taxation Office (ATO) has a set of rules and guidelines for those who are self-employed and want to continue their retirement planning. However, it depends on how you are employed.

There Are Two Kinds of Self-Employment

The ATO defines self-employment in two ways – self-employed, and substantially self-employed.

Those who work for themselves, such as sole traders can be considered to be self-employed and may be eligible to personal super contributions as a tax deduction.

Those who are considered to be substantially self-employed do work for themselves, but also work as employees for a company. Anyone in this category may qualify to claim their personal contributions. However, those in this group must have an employee income that’s less than 10% of their total income, with 90% or more of the total income coming from their self-employment income.

How Personal Super Contributions Are Taxed

Any personal super contributions are tax-free. However, if a personal contribution is claimed as a tax deduction, then the super fund must, by law, deduct the 15% tax for the Australian Taxation Office. Claimed personal contributions become concessional contributions, which include salary sacrifice as well as employer voluntary and SG contributions.

How Much Can Be Claimed As A Tax Deduction, and How Do You Go About It?

All concessional contributions are generally capped for the 2014-15 income year at $30,000. 15% tax applies to concessional contributions under the cap. Should you go over, additional taxes apply.

To claim personal contributions as tax deductions, you must notify your fund that you want to do so. This notice can be given using a Notice form. The form should contain the amount of contribution you made for the year, as well as how much of the year’s contributions you wish to claim. Following the sending of the Notice, your fund will acknowledge it officially. But the notice must be sent before you file your tax return, and arrive before the end of the year after which you made your contributions.

If the notice has been deemed as valid, then your super fund will issue an Acknowledgement and deduct taxes from your contribution, as well as reclassify it to a concessional contribution. On your tax return, you simply indicate ‘yes’ when asked whether you’ve made a personal contribution and claimed that amount as a tax deduction.

Even with all of the rules and guidelines in the world, the self-employed contribution can have many grey areas that you are not sure about how to address.

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