Notice of Intent requirements – getting it right

Published: 13 September 2023

Product Technical & Regulatory Change

Holding insurance cover inside super and making the most of superannuation tax concessions can be a relatively simple way to reduce the effective cost of your client’s insurance cover.

However, as the dust settles on the 2022-23 financial year, and with clients starting to think about preparing their tax returns, it’s important that critical administrative requirements are not inadvertently overlooked.

This is particularly important for clients who intend to claim a tax deduction for personal super contributions made during the 2022-23 financial year. That’s because a key requirement, to ensure a tax deduction is allowed, is the need for clients to lodge a valid Notice of intent to claim a deduction for personal super contributions form with their super fund within certain timeframes.

Key steps

While there are several criteria that must be met before a client is eligible to claim a tax deduction for personal super contributions, by far the trickiest is the requirement to lodge a valid Notice of Intent (NOI) form.

For an NOI to be valid, it must be lodged with the fund that received the contribution within strict timeframes. Unfortunately, there is no flexibility or discretion available to either the ATO or the super fund in this regard, so failure to meet these timeframes will result in a notice being invalid.

Once a client has lodged a valid NOI within the required timeframes, they must receive acknowledgement from their fund before they are eligible to claim a tax deduction for their personal super contribution(s).

What are the timeframes?

For a notice to be valid, it must be lodged with the superannuation fund before the earlier of the:

  • lodgement of their individual tax return for the 2022-23 financial year, or
  • end of the next financial year (i.e. 30 June 2024).

Importantly, clients don’t have to wait until the end of the financial year to lodge their NOI. In fact, an NOI can be lodged at the time the contribution is made.

In addition to the above timeframes, an NOI must also be lodged prior to a client making a lump sum withdrawal, rolling over to another fund, or commencing a pension.

Should any of these transactions occur before an NOI is lodged, the notice will be invalid – as the fund no longer holds the entire amount of the contribution.

If you haven't already, to help your clients prepare for their tax return, we will soon be sending a letter to those who made personal super contributions during the 2022-23 year, which will include an NOI form.

Insurance inside super

Where your client holds insurance cover inside super and intends to claim a tax deduction for personal super contributions made throughout 2022-23 there are a few areas to be particularly vigilant about over the coming months.

  • Cancellation of risk-only super policies

    If your client’s cover is held under a risk-only super policy, cancelling this cover before your client lodges their NOI will likely result in the NOI being invalid – as the client will typically no longer be a member of the fund once the policy is cancelled.

    As such, where relevant, ensure a valid NOI is lodged before cancelling cover.

  • Paying premiums via rollover

    It’s not uncommon for clients to pay for cover held inside super by initiating a rollover from one fund (say Fund A) to another (say Fund B – where cover is held).

    However, where personal contributions were made to Fund A prior to such a rollover taking place, an NOI will be invalid if this rollover occurs before an NOI is lodged.

    Example:

    During the 2022-23 financial year, Tabitha made a $15,000 personal contribution to her employer super fund, which she intends to claim as a tax deduction. Tabitha also has a risk-only death and TPD super policy.

    In April, $3,000 was rolled over from her employer super fund into her risk-only super policy to cover the premium.

    When Tabitha subsequently lodges an NOI for her $15,000 personal contribution, this notice will be invalid as her employer super fund will be deemed to no longer hold the entire amount contributed.

    Tabitha will need to lodge an amended NOI for a reduced amount (in this case $12,000 assuming nil balance) resulting in a reduced tax deduction being available.

  • Insurance cover owned inside SMSFs

    Notwithstanding the closely held nature of an SMSF, the NOI timeframe and process discussed earlier apply equally to personal super contributions made into an SMSF.

    Clients will need to lodge an NOI with the SMSF trustee – and the SMSF trustee must, in turn, acknowledge the receipt of the NOI before a deduction can be claimed.

How much to claim?

When completing an NOI, clients will need to nominate the amount that they wish to claim as a tax deduction. This may be an amount that is less than the amount contributed.

However, there are some things to be mindful of:

  • Clients cannot create (or increase) an income tax loss with a tax deduction arising from personal super contributions. Any tax deduction for personal super contributions is limited to the client's assessable income (less other deductions).
  • Clients will need to determine an optimal amount to claim as a tax deduction, based on their overall income for the year – factoring in their effective tax-free threshold resulting from the availability of lower-income tax offsets.
  • The amount able to be claimed as a tax deduction is not limited by the concessional contribution cap.
  • The ability to utilise unused carried forward concessional contribution cap amounts from previous years could result in a client’s concessional contribution cap being significantly higher than the standard $27,500 limit.
  • Contributions that exceed an individual’s concessional contribution cap can still result in tax efficiencies being generated where the contribution is being made to fund an insurance premium.

Amending an NOI

As mentioned earlier, individuals can lodge their NOI at the time of making a personal contribution. However, there is often a level of reluctance to do so because the amount of deduction required may not be known at the time.

It’s worth remembering that where someone has already lodged their NOI but later decides they no longer want (or need) to claim the amount previously specified in that notice, they are able to lodge a downward variation to their previously lodged notice.

Importantly, the same strict timeframes that apply to the lodgement of the initial NOI (discussed earlier) also apply to the lodgement of a variation.

The importance of getting it right

From a technical strategy perspective, holding insurance cover inside super and claiming a tax deduction for personal super contributions is an effective way to reduce the cost of cover.

At this time of year, by ensuring that the critical administrative aspects are met you’ll also ensure that the desired outcome is achieved for your clients.