IOOF technical services manager William Truong said the super reforms have introduced opportunities as well as some new restrictions that advisers and their clients will need to be mindful of, if they intend to claim a tax deduction on super contributions.
Where a client’s total super balance is $1.6 million or over at 30 June of the prior financial year, for example, the client is not eligible for the non-concessional contribution cap, he reminded practitioners.
“Excess non-concessional contributions give rise to associated earnings and a decision will be required to either remove the excess and 85 per cent of the associated earnings amounts from super or retain these amounts in super and pay excess non-concessional contributions tax at the top marginal tax rate, including Medicare Levy,” said Mr Truong.
“While concessional contributions are not restricted by a client’s level of total superannuation balance, total superannuation balance restrictions do apply [for] catch-up concessional contributions.”
Catch up concessional contributions, which enable clients to carry forward unused concessional contributions for a period of up to five years, can only be made where the client’s total super balance was below $500,000 at 30 June the prior financial year, he explained.
“Thus, for clients to make larger concessional contributions under the catch-up provisions, it requires future planning and careful monitoring of the total super balance,” he said.
“This may, for example, require clients intending on applying the small business CGT concessions delaying their disposal of active assets or their business and making contributions to super under the CGT small business cap until after their catch-up concessional contributions have been made.”
With the removal of the 10 per cent test, clients may be able to claim a tax deduction for contributions regardless of their employment arrangements, he said.
“[However, those aged 65 to 74 will still need to meet the work test in order to be eligible to make a contribution and claim a tax deduction,” he noted.
SMSF practitioners should also be aware, he said, that the reduction in income threshold for division 293 tax from $300,000 to $250,000 means potentially more clients will be caught by an extra 15 per cent contribution tax when making deductible super contributions.
A reduction in the concessional and non-concessional contribution caps means clients may also inadvertently breach the caps if they’re not careful, he warned.
He also reminded SMSF practitioners that contributions to certain defined benefit and untaxed super funds cannot be claimed as a tax deduction.
“From 1 July 2017, clients will not be eligible to claim a deduction for personal superannuation contributions made to Commonwealth public sector superannuation schemes which have a defined benefit interest, constitutionally protected funds and super funds that have elected not to accept deductible contributions,” said Mr Truong.