ATO, Superannuation, Tax

Cashing out contribution not tax avoidance

Superannuation Personal contributions Tax deductions Tax avoidance Part IVA SuperCentral Michael Hallinan ATO Private ruling

Super fund members can cash out a contribution on which they have made a deduction, but should show evidence they are not doing so to sidestep tax.

A superannuation member can make a personal contribution and claim a tax deduction on it and then cash out that contribution without triggering tax-avoidance provisions, but must do so in specific circumstances, according to a superannuation lawyer.

SuperCentral superannuation special counsel Michael Hallinan said a recent private binding ruling showed it was possible to make a deductible super contribution then cash it out without triggering the Part IVA rules, but clear evidence of not trying to avoid tax had to be present.

Hallinan said the ruling, which was released on 25 March, showed the member had made personal superannuation contributions for a number of years for which they claimed a tax deduction, but was concerned whether they could continue to do that and then cash out part of their retirement savings balance in the year they retired.

“Possibly a more general concern of the taxpayer was whether the general anti-tax-avoidance provision, Part IVA, would apply given the taxpayer was obtaining a tax benefit then after the contribution has been made and in the same tax year cashing out the superannuation benefit tax-free,” he said.

He noted the ruling stated the member was able to claim a tax deduction for the personal superannuation contribution as long as a notice of intent to claim a deduction was lodged with the trustee of the fund, which then issued an acknowledgment notice to the taxpayer before the super benefit was cashed out.

“The published ruling also noted that Part IVA did not apply to the circumstances of the taxpayer,” he added.

“This was because the taxpayer had an established practice of making deductible superannuation contributions and the superannuation contribution made in the financial year in which he retired was entirely consistent with that established practice.

“The published ruling did not provide any details as to the previous superannuation deductions – whether those contributions were identical in amount is not known or whether the contribution was the maximum which could be contributed for that year is not known.

“However, the ATO was of the view that the taxpayer had clearly established a practice and the contribution made in the financial year of this retirement was consistent with this practice.

“It is the consistency of the practice which established that the sole or dominant purpose, being the key issues for the application of Part IVA, was not the obtaining of a tax benefit.”

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