The ATO has outlined trustee obligations for the correct administration of ineligible downsizer contributions for SMSFs, following news more than $1 billion has moved into funds under the downsizer scheme.
In particular, the SMSF regulator flagged what should happen if the contribution could not be returned, what to do if the fund member who had made the contribution was in pension phase and what should happen in the event of the fund receiving a release authority.
The regulator said when a downsizer contribution was found to be ineligible, the fund was required to reassess the contribution amount in line with its trust deed and sub-regulation 7.04(1) of the Superannuation Industry (Supervision) Regulations 1994 to work out whether the amount could be retained as a non-concessional contribution.
The ATO noted that, if allowed by the trust deed, the fund could adjust the prior downsizing contributions to nil and either report that amount as a non-concessional contribution if the member met the age/work tests, or return the contribution to the member.
It also pointed to members’ responsibilities in the event of them being unable to return the contribution.
“Members who no longer have a super interest with the fund, or an insufficient amount being able to be returned, must have their contribution re-reported as non-concessional,” it stated.
“This re-reporting must occur even if the contribution was returned because the member did not meet the age/work tests.
“Some or all of the contribution may be an excess non-concessional contribution (ENCC). Regardless of the age of the member, if this is the case, the member will receive an ENCC determination.”
It said if the fund was unable to return the full amount, then any contributions the fund could return should be returned to the member, with the subsequent amounts unable to be released by the fund reported as non-concessional contributions if the member met the age/work tests.
The requirement to return an ineligible downsizer contribution that could not be accepted would remain, even if the member was in pension phase, it added.
“If a fund can’t return the contributions or can’t return the full amount (due to an insufficient amount in the member’s interest), the fund must re-report the amount of the downsizer contribution which they can’t return to the member as a personal contribution,” it noted.
It also highlighted the outcome for funds receiving a release authority, saying amounts released under such circumstances would be treated as a super lump sum.
“Being in pension phase doesn’t prevent a fund from complying with the release authority, however, it may mean the full amount can’t be released (as the available balance may be lower than the amount stated in the release authority),” it said.
“Where the member’s available balance is lower than the release authority amount, the fund must release the maximum amount available.”
