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The latest super reforms impose several key changes for clients to be aware of if they intend to make personal super contributions and claim a tax deduction on those contributions.
The requirement that employed clients derive less than 10% of their income from employment sources was abolished effective 1 July 2017. Regardless of their employment arrangements, clients may now be able to claim a tax deduction. However, those aged 65 to 74 will still need to meet the work test in order to be eligible to make a contribution and claim a tax deduction.
The removal opens up the opportunity to make personal contributions to clients who were employed but previously failed the 10% test. This is particularly beneficial for clients who are currently not working but are looking to reduce a capital gain.
The changes will appeal to many salaried clients. Those who have salary sacrifice arrangements, where their employer deducts contributions each pay cycle but may only remit the contributions to the super fund quarterly, will benefit from being able to make personal contributions in a timely manner.
Further, a previous barrier to salary sacrificing was that the arrangement had to be put in place before the salary was earned, which generally precluded clients from sacrificing their annual bonus. The new changes mean clients can effectively sacrifice a bonus after they have received it.
There are important rules if clients intend to vary their Notice of intent:
Example: Variation notice allowed
Helen is 45 and makes $30,000 in personal superannuation contributions in February 2018. She is employed and intends to submit her tax return by 31 October 2018.
Helen provides a valid ‘Notice of intent to claim a tax deduction’ for the full amount of $30,000 in March 2018 and receives an acknowledgement from her super fund. She then realises she will exceed her concessional contributions cap of $25,000 (for 2017/18) so she provides a variation Notice of intent to her super fund in September 2018 to reduce the amount claimed to $25,000. The remaining $5,000 is a non-concessional contribution.
Since providing her original Notice of intent, Helen has not made a full or partial withdrawal, or commenced an income stream and she confirms on the variation notice that she has not yet lodged her tax return relevant to that year. As her variation Notice of intent is provided within the restricted time period, it is acknowledged by the super fund and the amount advised in her previous Notice of intent is revised downwards to $25,000.
Super reforms have introduced opportunities as well as some new restrictions that clients and their advisers will need to be mindful of if they intend to claim a tax deduction on their super contributions.
Advisers will need to assist clients through the eligibility conditions as well as the process of making thecontribution and the deduction claim.