Does splitting contributions for a previous financial year, impact your ability to claim a personal deductible contribution?

Adviser Question:

My client has a super interest of $600,000 ($100,000 tax free component).  She made a personal contribution of $20,000 to the interest in early 2023–24. 

She now wishes to submit a valid notice of intent to claim a deduction for personal contributions form (NOI) for the contribution so she can claim a $20,000 deduction in her tax return.  However, since making the contribution, she applied to split $21,250 (ie. 85% of her $25,000 concessional contributions made in 2022-23).   The fund has since processed the super splitting request as a rollover out of the client’s interest.

Can my client still submit a valid NOI for all of her $20,000 contribution in 2023-24?

Answer:

Yes, provided your client has not made any other withdrawals or rollovers out of the fund since making the contribution, and has not commenced an income stream from her super interest, she can submit a valid NOI for the $20,000 contribution (provided this is done within the standard required timeframes, ie. the earlier of the date the client lodges their tax return for the financial year of contribution, and the end of the financial year after the year of contribution).

Further explanation:

An NOI will not be valid if, when it is given:[1]

• The client is no longer a member of the fund.
• The fund no longer holds the contribution.
• The fund has started paying an income stream based in whole or part on the contribution.

In Taxation Ruling TR 2010/1 Income tax: superannuation contributions, the ATO confirms[2] that a fund will no longer hold at least part of a contribution if a member subsequently rolls over some of their super interest. In such cases, a valid deduction notice will be limited to a portion of the tax free component of the super interest remaining after the rollover.

This portion[3] is calculated as:

Tax free component of interest after rollover x                                     Contribution

                ----------------------------------------------------------------------------  

                 Tax free component of interest before rollover

However, unlike other rollovers, spouse contribution splitting amounts are not subject to the normal tax component proportioning rule.   As spouse contribution splitting amounts only consist of taxable component[4],  the tax free component of a client’s superannuation interest does not reduce after a contributions splitting benefit is rolled out of their interest.

As a result, the above formula would equal the full value of the personal contribution, as shown for your client’s situation:

                                                                               $100,000 x   $20,000   =   $20,000

                                                                                                 --------------

                                                                                                 $100,000

She could therefore still submit a valid NOI for the full $20,000 personal contribution in relation to 2023-24.

[1] A notice is also invalid if, prior to the notice, the client has submitted a contribution splitting application form in relation to the contribution (and the fund has not rejected the application). However, this requirement is no longer relevant as non-concessional contributions made after 5 April 2007 cannot be split.

[2] See paragraph 71.

[3] See Example 10 in TR 2010/1 for an example of how this calculation works.

[4] Income Tax Assessment Act 1997, s307-140.