Failure to lodge a notice of intent when making personal deductible contributions is a key mistake still being made by super fund members with the risk of a sizeable tax bill increasing as they make use of catch-up contributions, according to a technical specialist.
MLC senior technical advice consultant Scott Quinn said the ability to make carry-forward concessional contributions of up to $162,500 using a five year look back meant many people were doing so via personal deductible contributions.
“Often what we find is someone wants a large deduction for a year, so they will put in a personal deductible contribution before the end of the financial year,” Quinn noted today in an online briefing for advisers.
“One of the things that we find often goes wrong with personal deductible super contributions is the notice of intent, and if anything’s going to go wrong, it will be timing requirements around that notice.”
Quinn pointed out a notice of intent had to be provided before the member lodged their tax return or started to draw down on the contributions, and with the ability to make catch-up contributions this correct order of actions was critical.
“Can you imagine making $160,000 as a contribution which you were going to claim a deduction for and then not being able to because you didn’t meet the timing requirements?,” he asked.
MLC senior technical advice consultant Mark Glesson added the timing requirements had been in existence since 2007 and any practitioner that failed to act or remind a client to do so will have made a significant mistake.
“Of all the strategies we go through, the carry-forward concessional contributions is probably the single best [one] because we’re talking about a potential deductible contribution of $162,500, which is staggering, but the cost of getting it wrong is huge.”
“Depending on their marginal tax rate, at $162,500 you are looking at close to an $80,000 tax bill and a client wouldn’t be very happy with a bill of that size which they otherwise thought they had managed.”
