An SMSF technical expert has warned practitioners and trustees to be mindful of the three regimes in existence when looking at addressing breaches of the contributions caps.
The original set of rules that applied pre 30 June 2011 penalised excess contributions by levying the highest marginal tax rate on any breach that occurred potentially resulting in a penalty rate as high as of 93 per cent if a non-concessional cap breach was also triggered.
The rules were then amended to allow a once off refund for concessional cap breaches under $10,000 to work in conjunction with the top marginal tax rate penalties.
The most recent adjustment to the excess contributions tax regime was made this year whereby breaches will be taxed at the individual’s marginal tax rate with full refunds plus an interest charge available if preferred.
“The second regime is what we call the interim regime. This is a regime that’s been operating for two years, it’s now come to a close, because now we’ve got the new regime. But it is kind of where we are at the moment,” Heffron SMSF Solutions technical services manager Leigh Mansell said.
However Mansell pointed out she hadn’t seen any trustees electing to take advantage of the $10,000 refund opportunity.
“We haven’t actually seen people make the election yet. Why do you think that is?” she asked.
“Thirty June 2012 was the first year it was in operation and if you think through we’ve only just lodged a lot of the 2012 work so it hasn’t gone through the system yet.”
Mansell stressed this lag had to be taken into account when dealing with excess contributions.
“What I imagine we’re going to see is, because of the time lag, items in relation to 2012 coming through,” she said.
“Also with 2013 financials we’re still going to have to be very mindful of the regime operating from 2011 to 30 June 2013.
“And we’re not going to see the current regime come into play for quite some time because it applies from the 2014 year and onwards. So there are very distinct pockets of how things work and very, very different rules and you need to be mindful of these.”