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 article outlines the basic eligibility requirements for making personal deductible contributions, includes an adviser checklist to use when recommending personal deductible contributions and provides some examples of common mistakes and tips on how to avoid them.
POTENTIAL BENEFITS FOR YOUR CLIENTS
For personal superannuation contributions made on or after 1 July 2017, clients no longer have to earn less than 10% of their 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 clients 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 any client who:
- is under the age of 75, and
- is eligible to contribute to superannuation, and
- has room left in their concessional contributions cap and
- has enough assessable income to be able to use the tax deduction.
- Claiming a tax deduction for personal superannuation contributions may allow clients to reduce their taxable income as well as provide a tax effective way to:
- fund 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.
To be eligible to claim a tax deduction for a personal superannuation contribution, a client 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. Please see the tips and traps below on what makes a notice invalid and the 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
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.