The end of financial year marks the start of the tax season and with that comes the common question, “can I claim that?”
Below Dr Jeffrey Scott, MetLife’s Head of Advice Strategy, outlines six potential tax deductions or incentives that your clients may be able to make the most of this 2021-2022 financial year.
1. Concessional contribution caps
For both the 2021-2022 and 2022-2023 financial years, the concessional contribution cap is $27,500.
Concessional contributions include:
a. employer contributions (including contributions made under a salary sacrifice arrangement), and
b. personal contributions claimed as a tax deduction.
All concessional contributions made to all of an individual’s superannuation funds are added together and counted towards the concessional contribution cap.
For example:
Marcia earns $100,000 per annum and her employer contributes $10,000 towards her superannuation. Marcia can therefore make up to $17,500 in additional contributions towards her superannuation that may be eligible for a tax deduction (see Section 2).
2. Notice of intent to claim or vary a deduction for personal superannuation contributions
Since 1 July 2017, personal superannuation contributions are generally eligible for a tax deduction provided they meet the following requirements:
- A “Notice of intent to claim or vary a deduction for personal superannuation contributions” has been lodged with the superannuation fund and the fund has validated the notice of intent form and provided an acknowledgement.
- The individual is still a member of the superannuation fund in which contributions are made.
- The age restrictions are satisfied. Broadly, for individuals older than 75, deductions can only be claimed for contributions made before the 28th day of the month in which the individual turned 75. For individuals under 18 at the end of the financial year, a deduction can only be claimed for contributions if income was earned as an employee or business operator during the year. Individuals aged 67-74 years, will be required to meet the work test in order1 to claim a deduction.
If an individual withdraws or rollovers part of their superannuation benefit before a Notice has been lodged, then the amount of the personal contribution that can be claimed as a deduction will be reduced as it’s considered to be included in the rollover/withdrawal amount (see Section 4).
A deduction may be denied if the superannuation fund has begun to pay a superannuation income stream (pension) based in whole or part on these contributions.
An individual also cannot claim the tax deduction for personal superannuation contributions if they’ve already lodged their income tax return for the year. In order to be eligible to claim the tax deduction, the Notice must be lodged on or before the earlier of the day they lodge their income tax return for the year in which the contribution was made or 30 June of the financial year following the year in which the personal contributions were made (i.e. 30 June 2023 for the 2021-2022 financial year)2.
3. Total Superannuation Balance
If an individual has a total superannuation balance (across all of their superannuation funds) of more than $1.7 million as at 30 June 2021, they will be unable to make any personal superannuation contributions. This means they will also be unable to claim any tax deductions for personal superannuation contributions for the 2021-2022 financial year.
4. Rollovers
An individual may not be entitled to a full tax deduction for personal contributions to superannuation where they’ve made a rollover from one superannuation fund to another prior to the end of the financial year.
For example:
Marvin contributes $1,000 per month to his super fund and intends to claim $12,000 as a tax deduction for the 2021-2022 financial year.
On 31 December 2021, he rolled over $3,000 to pay his MetLife Protect Super premiums but does not provide his super fund with a “Notice of intent to claim or vary a deduction for personal superannuation contributions” prior to the rollover.
As at 31 December 2021, Marvin’s superannuation balance is $50,000 and the tax-free component in his super fund is $6,000 (6 months x $1,000). The proportion of the $6,000 that remains in the fund is calculated as follows: $6,000 – ($3,000 x ($6,000/$50,000)) = $5,640.
If Marvin makes a further $6,000 of contributions prior to 30 June 2022, he will be able to claim $11,640 as a personal tax deduction, not $12,000.
5. Government Co-Contributions
An individual under 71 years old, earning less than $56,112 for the 2021-2022 financial year, may be eligible for a Government Co-Contribution of up to $500 for non-concessional contributions of up to $1,000 (maximum entitlement if income is less than $41,112).
Furthermore, the individual’s total superannuation balance must be less than $1.7 million as at 30 June 2021, and they must not have contributed more than their non-concessional contributions cap ($110,000 for 2021-2022 financial year).
To satisfy this test, 10% or more of an individual’s total income must come from either: employment-related activities, carrying on a business, or a combination of both.
6. Income protection premiums
If an individual pays their Income Protection premiums by 30 June 2022, they may be eligible to claim a tax deduction for the premiums in the 2021-2022 financial year, where the Income Protection policy is owned outside of superannuation.
For individuals who are currently applying for cover, the policy must be in-force and the premiums received (i.e. debited and banked) by 30 June 2022.
Unlike contributions to superannuation, there is no cap to the deductions for premiums paid for Income Protection insurance owned outside of superannuation. However, not all Income protection premiums are tax deductible, and only the proportion of the premiums attributable to income that is assessable and revenue in nature (such as income replacement) are tax deductible. The taxpayer needs to ensure that the proportion of Income Protection premiums attributable to capital payments are excluded (i.e. specified injury benefits, death benefits, and trauma benefits)3.
Happy EOFY. We wish you and your clients many happy (tax) returns!
References
- In order to meet the work test, an individual must be gainfully employed for at least 40 hours during a consecutive 30-day period in the financial year the contributions were made.
- INCOME TAX ASSESSMENT ACT 1997 - SECT 290.150 Personal contributions deductible; ATO TR 2010/1.
- ss8-1 & 118-37 ITAA1997; PR 2016/10; PR 2013/1; PR 2016/6; CR 2005/15.
