Question of the month

Varying a notice of intent after starting an income stream

Article published on: 28-06-2023

Can my client reduce the amount they wish to claim as a tax deduction on personal contributions to super once they have started an income stream?

Answer

Unfortunately, it’s not possible to vary down a notice of intent (NOI) to claim a tax deduction on a super contribution after commencing an income stream using any part of that contribution.

Clients should delay commencing an income stream if there is any uncertainty around the amount to be claimed as a deduction. The delay in commencing the income stream may mean that earnings on super assets continue to be taxed at up to 15%, compared to nil in pension phase. However, any tax saved on earnings may be outweighed by claiming too much (or too little) as a deduction and paying the 15% contributions tax unnecessarily.

Background

To vary down a deduction and have the 15% tax returned to the fund, the client must submit a NOI to vary a deduction. The form will be invalid if, among other reasons, the contribution(s) being claimed were used to commence an income stream or withdrawn from the fund before the variation (NOI) is submitted and an acknowledgement notice is received from the fund.

In addition, this form must be submitted before:

the date the tax return is lodged for the financial year the contribution was made, or
the end of the financial year following the financial year in which the contribution was made.

Example

Michael turned 60 in July 2022 and retired. Each year he has received a large family trust distribution towards the end of the financial year.

In August 2022, he contributed $10,000 to super and immediately submitted his NOI to claim a deduction to reduce the tax payable in anticipation of receiving the trust distribution. The fund promptly accepted his NOI and deducted 15% tax on the personal contribution. Michael then commenced an income stream to assist with cashflow and to benefit from tax free earnings on assets supporting the income stream.

As 30 June 2023 approached, Michael became aware he will not receive a trust distribution in 2022/23 and anticipates his assessable income for the year will be below the tax-free threshold.

Hoping to get the 15% tax deducted on personal contributions refunded, Michael submits a NOI to vary the deduction.

The super fund rejects his NOI to vary the deduction, as he had already commenced an income stream using part of the contribution. As a result, the original NOI for the $10,000 still stands and the 15% contributions tax cannot be refunded

This communication is prepared by Actuate Alliance Services Pty (ABN 40 083 233 925, AFSL 240959), a related entity of MLC Wealth Limited (ABN 97 071 514 264). This is for financial adviser use only – it is not to be distributed to clients. The communication has been prepared to provide financial advisers with technical resources, support and knowledge. The information in this document is current as at the date of publication and reflects our understanding of existing legislation, proposed legislation, rulings etc as at the date of issue, and may subject to change. In some cases, the information has been provided to us by third parties. Whilst care has been taken in preparing this document, no liability is accepted for any errors or omissions in this document, and loss or liability arising from any reliance on this document. Any general tax information provided in this publication is intended as a guide only and is based on our general understanding of taxation laws. It is not intended to be a substitute for specialised taxation advice or an assessment of your liabilities, obligations or claim entitlements that arise, or could arise, under taxation law, and we therefore recommend your client consult with a registered tax agent.