Lyn Formica, head of SMSF technical and education services for Heffron, said the issue has come to light over the past six months and concerns an update on the ATO website regarding instructions for completing a contribution notice.
“It now includes a statement that says you can only claim a tax deduction in whole dollars for your superannuation contributions when you’re making a personal contribution. Any residual cents will remain as a non-concessional amount and will count towards the cap,” she said.
“I looked at that change and thought, ‘well, just because you put that in the instructions doesn’t mean that I can’t claim a tax deduction for it’. I was absolutely wrong.”
Formica continued that there is a particular section in the Tax Administration Act, s388-85, which states that if the approved form indicates you can’t claim a tax deduction for the cents, then you have to truncate them – “you’ve got to chop them off and you don’t get to claim a tax deduction for those cents”.
Formica continued that although claiming a tax deduction for a few cents may not seem like a problem, the issue is the fact that cents that you don’t claim as a concessional contribution, you don’t claim as a tax deduction, therefore it’s not a concessional contribution that remains a non-concessional contribution, and could cause that member to trigger their bring-forward mode.
“So, if this contribution had been in the 2024 financial year, for example, the cap is $110,000 and what you would have been left with is $110,000.10 of non-concessional contributions, which triggers bring-forward mode,” she said.
“You might think that the ATO would not trigger bring-forward mode with cents, but they will absolutely include them. If you end up with a situation where that has caused your client to end up with excess non-concessional contributions, because perhaps they’ve triggered bring-forward mode in the wrong year, then it would be appropriate to apply to the ATO to disregard those cents on the basis that they’ve given you an unreasonable outcome.”
She added that it is the same form used when you apply to the ATO to disregard or reallocate superannuation contributions.
Leigh Mansell, director SMSF technical and education services for Heffron, added that a lot of clients are questioning why this would trigger the bring-forward rules and said it is often these “little bits” that many trustees are unaware of that can cause problems.
“It would be really handy if the ATO form itself didn’t have the squares for the cents,” she said.
