Claiming a tax deduction for putting money into an SMSF can, in certain situations, negate the accidental triggering of the non-concessional contributions (NCC) bring forward rules but this course of remedial action must be timed properly, a technical expert has said.
Heffron head of education and content Lyn Formica recognised this outcome is possible and illustrated her point through the use of an example where a fund member, Dana, moved $470,000 into super across two financial years.
She did this by making one NCC of $110,000 in the 2023/24 financial year and another of $360,000 start of the 2024/25 income year with plans to repeat the latter in the 2027/28 fiscal period.
However, in the circumstances Dana had overlooked a $1,000 contribution made in 2023/24 to a separate retail fund to maintain life insurance cover held via that fund.
“What problem has that caused? It triggered bring forward rule in the wrong year. Dana has NCCs in 2023/24 of the $110,000 plus the $1000 that went into the retail account which are greater than that year’s cap so she’s automatically triggered bring forward provisions,” Formica explained.
“This means she has locked in a $330,000 cap for the 2023/24 to 2025/26 financial years and some of the $360,000 she contributed in August 2024 is now excessive – in fact its $141,000 worth of excess NCCs.”
She pointed out any excess NCCs could be turned into a concessional contribution by claiming a tax deduction for it but the correct timing was essential to pull off this corrective action.
“When would Dana not be able to claim a tax deduction for that $1000? If she’s already lodged a tax return,” she added.
“You don’t get to claim a tax deduction for a personal superannuation contribution unless you’ve given a notice to the fund and received an acknowledgement of that, and there are time frames as when you have to give that notice.
“It needs to be given before you lodge your tax return for the year, so if Dana doesn’t discover this until she’s already lodged her return for 2023/24 she can’t change her mind and then say she’d like to claim a tax deduction for $1000 of that contribution.
“In SMSF land, it’s not just about getting your dates right. You have to give notice to the fund before as well, not just make sure you get the date right on the notice that you deliver six months later,” she cautioned.
