The process to claim a tax deduction for personal superannuation contributions is too complex, has too many points of failure and should be rolled into the annual tax return system, two industry bodies have recommended to government.
In their recent pre-budget submissions, the Institute of Financial Professionals Australia (IFPA) and SMSF Association (SMSFA) stated the deduction process relied on the notice of intent (NOI) to claim a deduction form and the necessity for trustees to acknowledge receipt of it.
Under the current superannuation rules, the NOI must be given before the lodgement of the individual’s income tax return for the income year in which the contribution was made or before the end of the next income year, after which the trustee must acknowledge receipt.
In its submission, the SMSFA noted these timing issues may lead to the individual’s tax deduction being denied and issues with their concessional contribution cap.
“The preparation and lodgement of a NOI typically occurs at the end of the financial year, once the individual’s taxable income and contributions for the year are known,” the industry body stated.
“Where an individual’s income tax return is inadvertently lodged prior to the issue of the written acknowledgement from the fund, the whole of the contribution will cease to be tax deductible. This is a particularly harsh outcome for what is administrative in nature.
“The deduction should be permitted so long as the acknowledgement is received from the fund no later than the last day of the financial year following the year the contribution was made.”
IFPA added the administrative process to claim a deduction was “unnecessarily complex” and the “requirement to first notify the fund via an approved form of an intent to claim a deduction is administratively burdensome”.
“We believe this process should be streamlined to make it easier for superannuation fund members to claim a deduction for personal superannuation contributions,” it said.
“For example, members could make an election as part of their individual tax return and the ATO notify the relevant superannuation fund on behalf of the member. This would avoid unnecessary paperwork and reduce the number of errors with claiming deductions for personal contributions.”
Among its recommendations, the SMSFA added the commissioner of taxation should be given discretion to allow a deduction and longer time frames should be considered to claim one.
“Allow the deduction where the member has notified their superannuation fund trustee and received written notice in the 12-month period after the end of the financial year in which the contribution is made, including where the member has already lodged their income tax return,” it said.
