EOFY strategy - deferred contributions

Where a member of an SMSF could use a tax deduction this year or has less need for one next year, it can be useful to make a contribution in June but have it not count toward the cap until July.

Why you’d do it

• Need for a higher deduction in the first year due to unusually high taxable income eg a capital gain or bonus

• No need for a deduction in the second year due to low income eg retirement

• Ineligible to contribute in the second year due to age or work test restrictions

• Have a need for the additional cash flow in the first year eg settlement of an asset purchase

Rules

A requirement to meet the work test applies in the year in which the contribution is made.

A total superannuation balance restriction applies in the year in which the contribution is allocated. Making a contribution in June of the first year will not circumvent a cap of nil which applies in the second financial year. (Only applies to non-concessional contributions (NCC)).

Only a discrete contribution may be deferred. A contribution of say, $50,000 can’t be allocated across two years. Two separate contributions must be made.

Check the deed to ensure the contributions may be held unallocated.

Necessary paperwork

• Resolutions documenting the strategy as well as the decisions to defer allocation and subsequently allocation.

• Notice of intent to claim a deduction and subsequent acknowledgement (s290-170 paperwork). Logically, this wouldn’t be completed until after allocation.

• If a CC is to be deferred, the member must complete a “Request to adjust concessional contributions” form and lodge it with the ATO, preferably prior to lodgement of the individual and SMSF tax returns.

• If a NCC is to be deferred, the member must apply to the ATO in writing to have the contributions allocated to the second year.

Remember that the member can’t start pension or split to a spouse until after allocation has been made and the notice of intent lodged.

If you wish to discuss this or other SMSF issues, book in for a free 30 minute chat:

https://calendly.com/topsuperconsulting/discovery-call

This information is of a general nature only and should not be relied upon as advice. It does not take into account your personal objectives, financial situation or needs.