For many clients, the Budget’s changes to CGT and negative gearing have reinforced the tax advantages of non-concessional super contributions – but it could cost them dearly if the right steps aren’t taken before the end of the financial year.
According to UniSuper advice technical and strategy specialist Stuart McMullen, the biggest mistake he sees advisers making is “recommending a personal deductible contribution, but then something happens in between the lodging of the notice of intent and the super fund acknowledging it that fully or partially invalidates it.”
Some of the common examples he cited were starting an income stream, making a lump sum withdrawal or an automatic rollover. Should any of those occur, he said, the NOI could be invalidated and the client would no longer be able to claim a deduction.
“A lot of the time, there’s not much that can be done if this happens, particularly if it’s a full rollover or an income stream commencement,” he said.
He added: “If it’s a partial rollover or a partial withdrawal, the consequences are that the full amount can’t be claimed; there as a calculation that occurs which could mean a reduced amount claimed as a deduction.”
As to how advisers can avoid these pitfalls, McMullen said the first port of call was checking the total amount of both concessional and non-concessional contributions with the client’s super fund – or with each fund if the client has more than one.
Next, he said, advisers should find a way to access the client’s information on the ATO portal.
“Some might have a good relationship with a tax professional and be able to, with permission, retrieve the information that way. Or they could just ask their clients to get a printout or screenshot via MyGov so they can see what’s showing up there as contributions,” he said.
“Once they have that information, they’re in a good position to make a recommendation about what level of contribution the client should make, and they can take steps to calculate the correct figure that needs to be lodged in the notice of intent.”
McMullen conceded that this isn’t a “simple process,” and that it’s often quite difficult for advisers to get this information in a timely manner.
“There always seems to be a bit of a rush at the end of the financial year,” he said.
“Advisers may be doing a lot of different transactions as part of a full comprehensive advice plan. There may be a contribution occurring, there may be a pension commencement occurring at some point, all of those things might be getting done as part of one financial plan and all of those things require all these different application forms and things to be submitted to the super fund.
“And if that order just gets slightly mixed up, particularly around this time of year, and with the notice of intent, that’s where things can go wrong.”
As alluded to above, the lack of easy access to clients’ ATO data is a major bottleneck for the profession, particularly in the lead up to June 30. The Financial Advice Association Australia renewed calls to give advisers read-only access to the ATO portal earlier this year as part of a pre-Budget submission, but there’s been very little progress thus far.
The FAAA submission said the process of obtaining clients’ tax information was “time-consuming, costly, and delays advice delivery.”
“Given the public availability of the ASIC Financial Adviser Register, we recommend that authorised financial advisers be granted secure, read-only access to the ATO portal to streamline advice and improve client outcomes,” the FAAA said.
