Contribution planning: Are you playing within the rules?

By Damian Hearn

Maximising contributions for clients while remaining within the caps has been a strong focus since 1 July 2007. This is proven in continued adviser demand for more information about maximising contribution strategies whilst avoiding the negative tax consequences.

To date, the members of the TechConnect team have written a number of articles on this topic (as shown in the table below), creating a library of useful material. In this article, we recap on some of these articles whilst providing important updates and more tips and traps to assist you with your contribution planning.

Article title	@dviser magazine edition	Access article
Timing of concessional contributions for employees: If you think you have control then think again!	May 2010	Click on link
ATO confirms SMSF arrangements to avoid excessive contributions are ineffective	April 2010	Click on link
Trustee matters – Accepting superannuation contributions	March 2010	Click on link
In-specie transfer of shares into superannuation – A strategy analysis	September 2009	Click on link
Problems with the ‘10% test’ in 2009/10	August 2009	Click on link
New Income Test Definitions and their impact on popular retirement planning strategies	June 2009	Click on link
New contribution caps warrant a rethink of retirement savings strategy	April 2009	Click on link
New reporting obligations for employers - Reportable Employer Superannuation Contributions	March 2009	Click on link
Beware of the Section 290-170 Tax Deduction Notice trap	October 2008	Click on link

^{Please note: Some of these articles may contain tax scales or thresholds relating to a previous financial year. Please note the information contained within these articles remains consistent with the current legislation, interpretation and subsequent application.}

1) Timing of concessional contributions for employees: If you think you have control then think again!

With reduced contributions caps from 1 July 2009, advisers need to be vigilant and ensure clients do not trigger excess contribution caps. As highlighted within the article, an adviser has no control over the timing of when employer contributions are made into a fund and the carried forward employer contributions (including salary sacrifice) will be counted against the concessional contribution cap for the new financial year.

This article is also relevant for clients who undertake a transition to retirement strategy or who will be maximising the contribution cap based on a salary sacrifice recommendation as demonstrated within the example of Helen.

Some more tips and traps are:

• The Australian Taxation Office (ATO) has the power to disregard or reallocate to another income year. Your clients may not have a strong case to have the contributions disregarded or reallocated if they have failed to reduce their super contributions for any relevant financial year especially if they have sought financial advice.
• It is important for the 2010/11 financial year that advisers continue monitoring the carry forward concessional contributions into the upcoming financial year. This will also include clients who will be salary sacrificing their one-off bonus received in the June 2010 quarter.

Please click here to access the article.

2) Trustee matters – Accepting superannuation contributions

The ATO released the final Taxation Ruling TR 2010/1 on 25 February 2010. The ruling looks at the Taxation Commissioner’s view on how contributions are made to super, classification of a contribution for other purposes (ie Australian resident superannuation funds), deductibility of personal non-concessional contributions and the ordinary meaning of the word ‘contribution’.

The article focuses on the popular area of contribution planning which involves in-specie contributions using assets such as listed Australian shares or units in a managed fund. Advisers should be aware of when an in-specie contribution is received for contribution cap purposes.

Some more tips and traps are:

• When maximising the contribution caps, advisers should avoid exceeding the $150,000 non-concessional contribution cap and triggering the $450,000 three-year-bring-forward for clients who are aged 64 or below at the start of the financial year.
• Advisers may wish to use a ‘cash buffer’ when making an in-specie contribution into a superannuation fund to avoid the non-concessional contribution cap from being exceeded. This is important as the contribution is counted against the cap when the properly completed off-market standard transfer form is received by the Trustee, not when it is signed by a client.

Please click here to access the article.

3) Problems with the ‘10% test’ in the 2009/10 financial year and onwards

The inclusion of reportable superannuation contributions (ie salary sacrifice contributions) from 1 July 2009 has created some headaches when it comes to using the ‘10% test’ for clients with dual employment situations – self employed and an employee.

As you would be aware, clients can no longer take advantage of salary sacrificing their employment income to satisfy the ‘10% test’; and then make personal deductible contributions using the remaining concessional contribution cap.

Even though the article focuses on the case of Peter for the 2009/10 financial year, the issues and planning hurdles highlighted remain relevant to the current financial year. The article also outlines some strategies to assist your client to satisfy the ‘10% test’, but for many of your clients this strategy is no longer available.

Please click here to access the article.

4) Beware of the Section 290-170 Tax Deduction Notice trap

The sudden death and restrictive rules applying to s290.170 deduction notices can make it difficult when planning for your clients. However, we are still concerned about the level of understanding that some financial advisers may have and unfortunately this lack of understanding of these rules can come at a cost to clients.

On the other hand, the client’s accountant should be made aware of these sudden death and restrictive rules. Otherwise, the working relationship with your client or even a sound referral source (ie the accountant) can become strained.

The article outlines all of the relevant issues that you should be aware of and it is also important for an adviser to be made aware of the Tax Commissioner’s views in this area within TR 2010/1. Please refer to paragraph 57 of the taxation ruling for further information.

Some quick tips and traps are:

• Before rolling over, completing a withdrawal or commencing a pension, an adviser should consider whether a client will need to claim a tax deduction for their personal contributions made into superannuation.
• The sudden death and restrictive rules are clearly defined within the legislation. A superannuation fund trustee has little or no available discretion to accept a deduction notice from a member who does not satisfy the rules.

Please click here to access the article.

Summary

Effective contribution planning can be difficult and avoiding the negative consequences can also be a challenge. The TechConnect team has various adviser technical presentations and workshops available to assist in this area. For more details, please contact your BDM.

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