Q: I am a self-employed IT contractor with my own ABN. I contract to one company and the current contract has been in force for more than 12 months. As a self-employed person, am I able to claim a tax deduction for contributions I make to Superannuation? I receive no Superannuation from the company I contract to.
A: You may have seen quite a lot of coverage this week on the subject of ‘unpaid super’. The broader question is whether you should be receiving the 9.5% SG contributions from the company you contract to. It is a common misconception that SG Contributions are not payable to contractors registered with an ABN, however, where a contract is predominately labour related, an employer/employee relationship is deemed to exist for the purposes of contributing SG contributions.
Determining whether an individual contractor is an employee for SG purposes can be complex and subject to intense debate! The ATO provides an employee/contractor decision tool to assist both parties in determining whether an individual under contract qualifies to receive SG contributions. It can be found at www.ato.gov.au under the Superannuation section and contractors.
Whilst the result may come as a shock to one or both of the parties, the outcome is definitive and should not be ignored. If a liability to make SG payments is determined, the liability exists for the entire period that the contributions should have been made. In addition, the “employer” will be liable to penalties on unpaid or overdue SG payments.
In relation to your specific enquiry, to be eligible to claim a tax deduction for Superannuation as a Self-employed person, you need to satisfy a number of conditions. For example, if you are considered to be engaged in an ‘employment’ activity during the year you will need to meet a maximum earnings test.
This maximum earnings test means that a deduction can only be claimed where the sum of your assessable income, reportable fringe benefits total, and reportable employer superannuation contributions attributable to the ‘employment’ activities is less than 10% of the total of your assessable income, reportable fringe benefits total and reportable employer superannuation contributions in the income year that the contribution is made. This is referred to as the “less than 10%” test.
Even though you describe yourself as a self-employed contractor, when it comes to working out your eligibility to claim a personal tax deduction for super contributions, you will be considered to be engaged in an ‘employment’ activity if you are engaged in an activity that results in you being treated as an employee for Superannuation Guarantee (SG) purposes – and this includes a person who is engaged under a contract that is wholly or principally for labour.
As such, depending on the exact nature of your arrangement and other personal circumstances, it may be that you will not satisfy this “less than 10% test”, meaning you may be ineligible to claim a tax deduction for Personal contributions to Superannuation.
Please note that in the recent changes to Superannuation Legislation that passed Parliament on 23 November, this 10% test has been removed from 1 July 2017. So from 1 July 2017, you should be eligible to claim a tax deduction for Personal Contributions made to Superannuation provided you satisfy all other conditions.