Craig Day, head of technical services at Colonial First State, said if the NOI in regard to claiming a tax deduction for personal superannuation contributions is not submitted exactly as it should, there is every chance there will be increased tax consequences.
“That’s because the rules surrounding this are fairly complicated,” he said.
“Every year there are situations that involve people making personal deductible contributions, and then something goes wrong and the client potentially misses out on their ability to claim that tax deduction.
“The rules are complex, and with recent changes to event-based reporting and the work test, the risk of things going wrong, is just as high as ever.”
Mr Day said clients firstly need to make an after-tax personal contribution.
“When the super fund receives the contribution, it will report it as a personal contribution and at this stage, it’s exactly the same as making a non-concessional contribution,” he said. “The client then needs to lodge a valid Notice of Intent to claim a deduction for personal contributions with their super fund, and then the client needs to wait to receive the acknowledgement notice from the super fund that the founder has received a valid a Notice of Intent from this member.
“When the tax time comes, after the end of the financial year, the client needs to claim a tax deduction for personal super contribution in their tax return. But that’s not the end of the story.
“The client can only do so if they have sufficient taxable income.”
Mr Day said there are at least four steps with multiple different issues that need to be considered which is why there is a great potential for mistakes to be made, especially in regard to the NOI.
“What are the traps here? What are the types of things that can and more often than not, do seem to go wrong?” he said.
“Firstly, there is a specific timeframe that requires the valid Notice of Intent to be lodged. It’s before the tax return is lodged, or if the tax return is not lodged by the end of the following financial year, then the Notice of Intent must be lodged before the end of the following financial year.
“What we have seen most recently is that advisors recommend to the client to make a personal contribution to the fund with an intention to claim either part of it or all of it as a deduction.
“But at that stage it is not clear what the client’s taxable income might be so they wait for the accountant to confirm the level of a taxable income before they go to the fund and submit the Notice of Intent. The accountant then lodged the tax return without knowing that that the client’s intention to claim a personal contribution deduction.
“When the tax return is lodged it is simply too late for the client to go to the fund and lodge a valid a Notice of Intent and there’s absolutely no way to claim this as a personal contribution. The tax law does not give the ATO or the fund any discretion.
“It is important for the advisors and the tax agents or tax accountants to work together so everyone is on the same page.”
