SMSFA pushes for red tape reduction across super rules
The notice of intent to claim deduction rules must be simplified to reduce the rate of failure, the association says.
Ahead of the federal budget, the SMSF Association has urged the government to simplify the complex rules for claiming tax deductions for personal super contributions, the total super balance thresholds and indexation of the transfer balance cap.
SMSFA chief executive Peter Burgess said the superannuation sector suffers from being unnecessarily complex which makes the system more confusing and costly for no discernible benefit to trustees, members, and their advisers.
“Nowhere is this complexity more evident than with transfer balance caps, super balance thresholds, and the rules overseeing the notice of intent to claim a tax deduction. All three issues would benefit from being simplified,” said Mr Burgess.
The SMSFA has urged the government to reform the notice of intent to claim tax deduction rules, with the operation of these rules “overly complex, containing multiple hurdles and points of failure”.
“The result is the loss of a tax deduction for an individual contributing. The regime is inflexible and does not allow for amendments or remediation,” it said in its pre-budget submission for 2024–25.
“A point of failure can often be the result of a simple administrative error, which the taxpayer is unable to remedy, and the Commissioner of Taxation has no discretionary powers to resolve.”
The SMSFA said the operative provisions need reform and modernisation to ensure the law operates in a manner that is fit for purpose in a modern context.
The submission said that while the ability for individuals to be able to make personal deductible concessional contributions was a welcome development, the notice of intent to claim a deduction form and associated compliance processes must be improved.
“In an environment with improved data access and processing, electronic reporting and forms, there is an opportunity to improve the member experience, accessibility, and simplicity, to encourage superannuation savings,” it said.
The association said timing issues with the rules can create circumstances that may deny the individual the tax deduction and the ability to utilise their concessional contribution cap.
“The preparation and lodgement of a NOI typically occurs at the end of the financial year, once the individual’s taxable income and contributions for the year are known,” the submission said.
“Where an individual’s income tax return is inadvertently lodged prior to the issue of the written acknowledgement from the fund, the whole of the contribution will cease to be tax deductible.”
The submission said this is a particularly harsh outcome for what is administrative in nature.
“The deduction should be permitted so long as the acknowledgement is received from the fund no later than the last day of the financial year following the year the contribution was made,” it said.
Other issues arise where a partial rollover or withdrawal of benefit occurs.
“For example, where the Commissioner issues a release authority to the fund. This compels an amount to be paid out of the member’s interest in the fund. Examples include Division 293 or excess contributions assessments,” the submission said.
Mr Burgess said indexing the TBCs on 1 July 2021 and 1 July 2023 had also added further complexity to the system, having shifted from having a single cap to individual caps ranging from $1.6 million to $1.9 million.
“This is causing confusion and increasing costs across the sector – and can only increase with future indexation,” said Mr Burgess.
“It is no different to the introduction of multiple TSB thresholds that have made it increasingly difficult for individuals to understand their options. In our opinion, the number of TSB thresholds could be significantly reduced.”
Mr Burgess said the introduction of multiple TSB thresholds has also made it increasingly difficult for individuals to understand their options.
“In our opinion, the number of TSB thresholds could be significantly reduced,” it said.
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