Personal deductible contributions may be viewed as a form of tax avoidance if combined with a recontribution strategy, with the ATO applying rules it publicised during the COVID-19 pandemic.
Institute of Financial Professionals Australia (IFPA) senior technical services specialist Stuart Sheary noted the regulator’s approach to viewing whether a contribution into superannuation breached the Part IVA rules came down to the intent of the member and this extended to claims related to personal deductible contributions.
Speaking at The Super Playbook event hosted by IFPA and The Auditors Institute in Sydney recently, Sheary gave an example of a fund member who withdrew $10,000 from their superannuation, but a short time later decided to put it back in to the fund as a personal deductible contribution.
“In terms of tax avoidance, this one is a little bit more controversial. We’ve got Jess here. She’s 65, works full time, but spends her income and has no spare cash flow,” he said.
“As such, she withdraws $10,000 and recontributes it into her super fund within a short time and notifies her fund she intends on claiming a deduction in July the following year, which reduces her taxable income.
“Is this arrangement Part IVA? Is this tax avoidance? Is it questionable? I think so.
“The ATO certainly didn’t like that scenario when put in the context of the COVID-19 superannuation withdrawals.
“On their website, they published a scenario where Jess was a pilot. She lost her job so withdrew $10,000 tax-free, being the COVID-19 release amount.
“She didn’t really need the money so put it back in the next day, then claimed a tax deduction.
“The ATO said that was a Part IVA occurrence and it really didn’t like [the move].
“So yes, there’s a strong analogy between this scenario and the scenario we just covered.”
