PERSONAL SUPER CONTRIBUTIONS

Claiming personal tax deductions for personal super contributions is a valuable new opportunity, if you don’t get caught out by any of the common traps! This opportunity is easier than having your employer salary sacrifice and more flexible.

POTENTIAL BENEFITS OF PERSONAL SUPER CONTRIBUTIONS:
For personal superannuation contributions made on or after 1 July 2017, you no longer have to earn less than 10% of your income from employment (or not have been employed during the financial year) to be eligible to claim a tax deduction. This makes the tax deduction potentially available to people who earn 10% or more of their income from employment for the first time.

This opens up the opportunity to claim a tax deduction for people who:

  • are under the age of 75, and
  • are eligible to contribute to superannuation, and
  • have room left in their concessional contributions cap and
  • have enough assessable income to be able to use the tax deduction.

Claiming a tax deduction for personal superannuation contributions may allow you to reduce your taxable income as well as provide a tax effective way to:

  • fund your insurance within super
  • contribute to super where salary sacrifice is not available
  • save for a first home deposit
  • make in-specie contributions of direct shares into SMSFs.

ELIGIBILITY
To be eligible to claim a tax deduction for a personal superannuation contribution, you must:

  • be under age 75
  • make a personal contribution to a complying superannuation fund
  • submit a valid Notice of intent to claim a deduction for personal super contributions, in the approved form, to the superannuation fund trustee within required timeframes.
  • receive acknowledgement from the trustee that the valid notice of intent has been received before claiming a tax deduction
  • claim a deduction in their tax return for an amount that does not exceed the amount stated in the notice of intent and does not exceed the client’s assessable income less all other deductions

INELIGIBLE CONTRIBUTIONS 
A deduction cannot be claimed for a personal contribution that is:

  • a downsizer contribution
  • a CGT exempt amount contributed to super as required under the small business retirement exemption
  • made to a Commonwealth public sector superannuation scheme in which the client has a defined benefit interest
  • made to an untaxed fund
  • made by a minor unless the minor derives income from employment or carrying on a business.

TRAPS AND TIPS

TRAP – CONCESSIONAL CONTRIBUTION CAP
The amount of personal deductible contributions must be considered in total with all the client’s other concessional contributions for the income year to ensure the contributions are not excessive. Your concessional contributions cap for 2017/18 is $25,000.

TIP – TYPES OF CONCESSIONAL CONTRIBUTION
The main types of concessional contributions include:
• Employer contributions eg superannuation guarantee and salary sacrifice
• Personal contributions made by the member for which a valid deduction notice is submitted and acknowledged and the member claims the deduction in their tax return.
• Member contributions made on behalf of the member by another person eg contribution by a friend (does not include spouse contributions, Government co-contributions, LISTO contributions or child contributions)

TRAP – TOTAL SUPERANNUATION BALANCE > $1.6M
An individual with a total superannuation balance of $1.6 million or more is not restricted from making personal deductible super contributions (concessional contributions)

TRAP – INCORRECTLY CATEGORISING CONTRIBUTION AS AN EMPLOYER CONTRIBUTION
A member who incorrectly classifies a personal contribution as an employer contribution and also claims a tax deduction for the contribution risks receiving an excess concessional contributions tax determination, as the ATO will count the contribution twice.

TIP – CHECK THE CLASSIFICATION AT FINANCIAL YEAR END, PRIOR TO CLAIMING A TAX DEDUCTION

TRAP – CLAIMING CO-CONTRIBUTION OR SPOUSE TAX OFFSET
Where you make a personal contribution to superannuation and claim a tax deduction, you will not be able to claim a co-contribution on that contribution. A personal contribution to superannuation cannot be used as an eligible spouse contribution to claim a spouse contribution tax offset.

TIP – PLAN ALL TYPES OF CONTRIBUTIONS BEFORE MAKING THEM
To avoid missing out on co-contributions or a spouse contribution tax offset, carry out more general contribution planning first. If you plan to claim a co-contribution, ensure a notice of intent is not submitted for that contribution. If a spouse tax offset will be sought, ensure the contribution is made by the spouse and not as a personal super contribution

TRAP – SUBMITTING A NOTICE OF INTENT TOO LATE
A Notice of intent to claim a deduction for personal super contributions will not be valid unless it is submitted in writing to the fund trustee by the earlier of: ·
• The end of the day the taxpayer lodges their income tax return for the income year in which the contribution was made or
• The end of the next income year following the year of contribution

TIP – KNOW WHAT MAKES A NOTICE OF INTENT INVALID
A notice of intent to claim a deduction for personal super contributions will not be valid in any of the scenarios below:
1. the notice is not in respect of the contribution
2. the notice includes all or part of an amount covered by a previous notice
3. when the client submitted the notice:
• they were not a member of the fund or
• the trustee no longer held the contribution or
• the trustee had begun to pay an income stream based in whole or part on the contribution
4. Before the client submitted the notice:
• the client had made a contributions splitting application in relation to the contribution and
• the trustee had not rejected the application.

TIP – SUBMIT ALL NOTICES AND RECEIVE ACKNOWLEDGEMENT FROM THE FUND PRIOR TO ROLLING OVER ANY SUPER FUNDSTIP – ENSURE THE AMOUNT SPECIFIED IN THE NOTICE OF INTENT DOES NOT EXCEED THE AMOUNT THAT IS CALCULATED TO REMAIN IN THE FUND AFTER A ROLLOVER OR WITHDRAWAL

TIP – SUBMIT ALL NOTICES OF INTENT AND RECEIVE ACKNOWLEDGEMENT FROM THE FUND PRIOR TO:
• Transferring super to another fund to pay insurance premiums
• Withdrawing amounts from super
• Releasing any first home super saver contributions
• Commencing any pension (of any size)

TRAP – CLAIMING AN INCORRECT AMOUNT IN THE TAX RETURN
The amount of the tax deduction you may claim in your tax return for personal superannuation contributions is limited to an amount that does not exceed the amount stated in the notice of intent and does not exceed your assessable income less all other deductions. The claim will be denied if it contributes to a tax loss.

TRAP –ASSESSABLE INCOME BELOW THE TAX-FREE THRESHOLD
If you do not have assessable income above their effective tax-free threshold will not receive a tax benefit from claiming a tax deduction for personal superannuation contributions.

TRAP –INCOME AND LOW TAX CONTRIBUTIONS ABOVE $250,000
You will be subject to an extra 15% Division 293 tax on taxable contributions where your total income plus low tax contributions exceed $250,000. Division 293 tax reduces the tax concession on superannuation contributions for high income earners.

TRAP – MAXIMISED YOUR NON-CONCESSIONAL CONTRIBUTIONS FOR THE INCOME YEAR
If you have maximised your non-concessional contributions for the income year you are not restricted from making personal deductible super contributions (concessional contributions). However, if the deduction is denied by the ATO, the contribution will be classified as a non-concessional contribution, and would be counted as an excessive non-concessional contribution. Excess non-concessional contributions are taxed at 47% if not withdrawn from the fund.