SMSF members who want to split carry-forward concessional contributions with their spouse or partner will have no control over which year’s unused cap will be applied by the ATO, which will start using caps from the oldest year first.
BT Technical Services technical consultant Tim Howard said the current financial year is the fifth to allow the carry forward of unused concessional contributions and while those contributions could be split, SMSF members could not pick which unused contributions they would like to apply.
“We are in year five of the carry-forward concessional contribution arrangement and you might have clients who have unused cap space going back to the 2018/19 year,” Howard said during a recent webinar.
“Someone in that position in the current year could have four years’ worth of unused cap space plus their current $27,500 concessional cap.”
He said SMSF members who intend to use those carry-forward concessional contributions did not need to lodge any additional forms with the ATO, which would automatically detect the contributions and work out if the member was eligible to use the carry-forward provisions.
If the carry forward was done for splitting purposes, the regulator’s calculation of which caps to use would not differ than if the process was carried out for the member only, he noted.
“The ATO use your concessional contribution for this year first, so that is $27,000, and then go right back to 2018/19 to see if you had any unused cap space and forward to 2019/20 and so on to use up the space,” he said.
“You can’t choose what year is applied and you can’t choose to use your unused from, say, 2018/19 first before using a current year’s cap space.”
SMSF members should also be aware there were caps on how much could be split from a contribution unless they were a member of an untaxed fund, he said.
“The splittable amount is almost always going to be 85 per cent of the concessional contributions, but it is technically the lesser of 85 per cent of your concessional contributions and the concessional contribution cap for that year,” he said.
“If you have clients that are members of untaxed funds, they can split up to 100 per cent of the concessional contributions cap for that year.”
