By: Noel Whittaker
In recent columns I have extolled the virtues of the change in superannuation rules that allow you to claim a tax deduction for personal concessional contributions even if your employer is contributing for you.
But make sure you take advice before you make the contribution. It’s a minefield of paperwork, and getting it wrong could mean the loss of all or part of the tax deduction.
You have to submit a valid notice of intent to claim a deduction for personal superannuation contributions in the approved form, to the superannuation fund trustee before you lodge your tax return or by the following June 30, whichever is the earliest.
You then need to receive an acknowledgement from the trustee that a valid notice of intent has been received, before you can claim a tax deduction. The timing of these actions in relation to your contribution and what you do next is important.
Let’s look at some examples:
Changing investment goals: Allen makes a personal contribution to his fund in April 2018, intending to claim it as a deduction when he does his tax. He does not submit a notice of intent at the time. In September, he rolls his three existing super funds into a new fund that offers investment options more suited to his goals.
In early October, Allen is ready to do his tax, and he lodges a notice of intent to claim a deduction for personal super contributions with the fund that now holds the rollovers from his three previous funds.
But that notice is invalid as he has not made any personal contributions to the new fund. The notice would also be invalid if he sent it to the old fund (where he made the contribution) for two reasons: first, when he gives the notice in early October, he is no longer a member of the fund; and second, the fund no longer holds his contributions.
Allen has lost his entire tax deduction for the contribution.
Rollover strategy: Jo’s $50,000 super fund consists of a tax-free component of $27,500 and a taxable component of $22,500. She makes a $25,000 personal contribution in February 2018, bringing the balance to $75,000. The fund records this contribution against the contributions segment. To this end, that amount would be counted against the tax-free component of any superannuation benefit paid to her.
In June 2018, she rolls over $50,000, leaving $25,000. The $50,000 rollover comprised of a $35,000 tax-free component and a $15,000 taxable component. The tax-free component of the remaining superannuation interest is $17,500.
As the superannuation fund no longer holds the entire $25,000 contribution, the maximum amount she can claim as a deduction is $8333.
Pension stream: Harry’s superannuation balance is $175,000. He makes a $25,000 contribution in March 2018, taking the balance to $200,000. Before lodging a notice of intent, he started a pension using $150,000 of his fund. Because his fund has started to pay a superannuation income stream based in part on the contribution recently made, any notice he gives to the fund will be invalid. Therefore, he will be unable to claim a tax deduction for the $25,000 contribution. However, if he had submitted the notice of intent before starting the pension, he would have been eligible to claim a $25,000 tax deduction.
First home buyer: Beck makes a $15,000 contribution to super in June 2018 to save for a house deposit. In the following September she starts looking for a home to buy and applies for release of the $15,000 under the First Home Super Saver Scheme. She accidentally declares she does not plan to claim a tax deduction on the $15,000 contribution.
In March 2019 she buys her first home using the FHSS released amount towards the purchase. In June 2019, when catching up on her tax, she submits a notice of intent in order to claim a tax deduction. The notice is invalid because the fund no longer holds her contributions. The tax deduction is denied.
I appreciate that this is complex – but as you have just read, the cost of getting it wrong can be the loss of all or part of your tax deduction. Tread carefully.
Source: The Sydney Morning Herald