The act of providing SMSF trustees with a notice of intent (NOI) to claim a tax deduction for a personal contribution for members between the ages of 67 and 75 requires great care as significant adverse outcomes for the member can result should a variation to it not be possible, a superannuation specialist has said.
According to Tax and Super Australia head of superannuation Natasha Panagis, a common issue that can arise is the individual not being able to satisfy the work test after the contribution has been made that will require a variation to the NOI.
If the work test has not been met, the intended deduction included on the NOI would have to be reduced to nil, which should trigger a refund for the tax applied to the contribution from the SMSF, Panagis said.
“The problem is the notice of intent form can’t be varied downwards where the trustee no longer holds that contribution for a number of reasons. It could be because withdrawals have been made from the fund, or a certain amount has been rolled over to another fund, or the client may have split contributions to their spouse, or the client may have commenced an income stream using some or all of that contribution,” Panagis noted.
“Where any of these situations may occur, the individual won’t be able to claim that tax deduction for their personal contribution … and those contributions that have been accepted in error can’t be refunded.”
She pointed out these circumstances will mean the personal deductible contribution will become a non-concessional contribution and could lead to a compliance breach if the member in question has already exhausted their non-concessional contributions cap, either by an annual contribution or through the use of the bring-forward provisions or their existing total super balance exceeds $1.7 million.
“It means the contribution will be excessive, they’ll have to go through the ordinary ATO excess [contributions] process, withdraw the amount, withdraw any [associated] earnings from their account and [be subject to] the whole arrangement that comes along with having an excess contribution,” she noted.
“So [it’s] best to be aware of these traps to avoid them where possible and avoid breaches of the non-concessional contributions cap as a result.”
She suggested the scenario outlined above provides encouragement for individuals aged between 67 and 75 to ensure they satisfy the work test before a personal deductible contribution is made.
