As many individuals start to turn their minds toward meeting their tax time obligations, a recently published Administrative Appeals Tribunal (AAT) case highlights the strict application of the Notice of Intent (NOI) requirements when seeking to claim a tax deduction for personal superannuation contributions – and the importance of ensuring that all the steps in the process are precisely navigated.
In Nicholls and Commissioner of Taxation (Taxation)  AATA 2772, it was also made abundantly clear that the ATO has no available discretion where the NOI requirements are not properly met.
In this case, while the taxpayer had made a personal superannuation contribution and lodged an NOI with the relevant super fund within the required timeframes, the deduction the taxpayer was seeking to claim was denied by the ATO.
Unfortunately, the NOI that the taxpayer had lodged with the fund was declared to be invalid as it sought to claim a tax deduction for an amount greater than the amount the taxpayer had contributed at that time.
While the taxpayer claims to have lodged a subsequent NOI after being notified by the fund of this oversight, the fund in question claims to have never received the subsequent NOI.
In the mistaken belief that this subsequently lodged NOI would be sufficient, the taxpayer proceeded to lodge their personal income tax return – without having received an Acknowledgement of the NOI from the fund (which of course is another of the key NOI requirements).
The ATO claimed not to have any available discretion to overlook the taxpayer’s failings in this instance, and the AAT agreed – resulting in the tax deduction being disallowed.
As an additional consideration, while not directly relevant to this case, it’s also important to acknowledge that personal super contributions are, in effect, treated by the ATO as Non-concessional contributions until such time as they are properly claimed as a tax deduction by the taxpayer – at which point they will be counted as concessional contributions.
Given the relatively recent removal of the work test from the contribution acceptance rules, there is also another potential stumbling block. That is, individual’s aged 67 to 75, who intend to claim a tax deduction for personal super contributions will need to remain vigilant when it comes to meeting the work test. A failure to meet the work test by individuals in this cohort will result in their claim for a tax deduction being denied – without impacting the fund’s ability to accept the contribution.
As such, in addition to the disallowance of a tax deduction, failure to properly follow the NOI process and/or a failure to properly claim the personal contribution as a tax deduction may result in that contribution being assessed against the member’s non-concessional contribution cap, which in turn may lead to an excess NCC determination – and potential further tax implications.
To help you navigate your way through a myriad of contribution issues this tax time, the SMSF Association has recently published several Technically Speaking bulletins as a useful resource:
- Technically Speaking: Dealing with excess concessional contributions
- Technically Speaking: Taking a deep dive into the world of non-concessional contributions
- Technically Speaking: Dealing with excess non-concessional contributions
Written by Fabian Bussoletti, Technical Manager