NOI critical to avoid anti-tax penalties: lawyer

“The particular concern of the taxpayer was whether, in relation to the financial year in which they retired, they could still make a personal superannuation contribution and claim a tax deduction for that contribution and then cash out part of their superannuation balance,” Hallinan said.

“Possibly a more general concern of the taxpayer was whether the general anti-tax avoidance provision (Part IVA) would apply given they were obtaining a tax benefit - the tax deduction for the personal contribution - then after the contribution has been made and in the same tax year, cashing out the superannuation benefit which included the contribution tax-free?”

Hallinan said it was worth noting that the taxpayer had not previously been entitled to cash out his superannuation.

The ATO stated in its ruling that the taxpayer would be entitled to claim a tax deduction for the personal superannuation contribution so long as the NOI to claim a tax deduction was lodged with the trustee of the relevant superannuation fund.

It was also a requirement that the trustee issued an acknowledgement notice to the taxpayer before the super benefit was cashed out.

The ruling continued that if the cashing out was effected before the acknowledgement notice was issued, the deduction notice would be invalid and a pre-condition for the deduction would not have been satisfied.

“The reason for the invalidity of the deduction notice in this situation is that once the cashing out has occurred, the trustee must have treated the superannuation contribution as being a non-concessional contribution and the trustee cannot retrospectively change that treatment,” Hallinan said.

The ruling also noted that Part IVA did not apply to the taxpayer's circumstances because they had established a practice of making deductible superannuation contributions and the superannuation contribution made in the financial year in which he retired was consistent with that established practice.

“Unfortunately, the published ruling did not provide any details as to the previous superannuation deductions – whether those contributions were identical or roughly identical in or whether the contribution was the maximum which could be contributed for that year,” Hallinan said.

“However, the ATO was of the view that the taxpayer had clearly established a practice and the contribution made in the financial year of this retirement was consistent with this practice. It is the consistency of the practice which established that the sole or dominant purpose, being the key issue for the application of Part IVA, was not the obtaining of a tax benefit.”

He added that other conditions must be satisfied before a valid deduction can be claimed for a personal superannuation contribution. These include the fund being a complying superannuation fund, satisfaction of the work test if the contributor has attained age 67, and the contributor having sufficient taxable income against which to offset the deduction.