SMSF members can successfully seek increases in tax deductions for concessional contributions after indexation, provided this contribution strategy is used effectively, a technical expert has said.
SuperConcepts SMSF technical support executive manager Nicholas Ali said the rise in concessional and non-concessional contribution caps as a result of indexation on 1 July could allow for an increase in tax deductions for members using an unallocated contributions account, as long as their use of this contribution strategy meets key compliance requirements.
“[When using an unallocated contributions account] contributions are eligible for deductibility in the year they are received by a superannuation fund, however, they are not counted towards the member’s contribution cap until they are allocated to the member,” Ali noted.
“This means if a contribution to an SMSF is received in June 2021, but not allocated to the member until July 2021, it will be eligible for deductibility in the 2020/21 financial year, but count towards the relevant cap in the 2021/22 financial year.”
He pointed out the fund’s trust deed had to allow for an unallocated contributions account strategy and the contribution needed to be allocated within the 28-day requirement in order for this particular strategy to be successful.
There also had to be evidence of the receipt of the contribution and a trustee resolution detailing their decision to defer the allocation of the contribution until the next financial year as per the Superannuation Industry (Supervision) Regulations, he said.
“Trustees should also ensure the ATO is notified of the use of the strategy by the time the fund’s SMSF annual return (SAR) and the individual’s income tax return are lodged,” he added.
“This is important, otherwise the contribution will be reported in the SAR in the year in which it was received, which may mean the ATO may believe the member has exceeded their concessional contributions for the year.”
In November, SuperConcepts SMSF specialist Anthony Cullen said indexation should not be considered in an isolated manner when deciding on SMSF contribution strategies as many other influential factors could also easily play a part.
