While the Australian Taxation Office (ATO) has withdrawn its proposed action seeking to legally outlaw excessive contribution provisions within an SMSF trust deed as a means to prevent trustees from breaching the non-concessional contributions cap, the practical application of this course of action seems unworkable, according to an expert superannuation lawyer.
The provisions in question operated by imposing an obligation upon SMSF trustees not to accept excessive non-concessional contributions, potentially making them hold the offending contribution in a trust structure separate to the super fund, Townsends Business and Corporate Lawyers special counsel Michael Hallinan explained at his firm’s latest Bacon Super and Eggs seminar in Sydney.
“I have difficulty with how these provisions can operate. My simple argument is I can’t see how they can originally accept a contribution and then reject it two or three years later when the issue arises,” Hallinan said.
“Bear in mind it is not illegal to make excessive non-concessional contributions. There can be adverse tax consequences, but it is not illegal.
“The other problem is the contribution is not excessive. It’s only the aggregate of the contributions in a financial year which is the excessive component, so it’s not an attribute of the contribution.
“So in my view these provisions don’t work because at the time of receipt you really don’t know whether the contribution is excessive or not, and you won’t know if it is excessive until all the contribution information for the financial year has been provided to the ATO and the ATO does its calculations and works out whether the aggregate of those contributions exceed the relevant caps.”
He did concede those types of provisions could work in the rare circumstance where the trustee knew the specific contribution would lead to a breach of the non-concessional cap at the time it was made.
“I presume once that decision is reached the trustee would immediately have to extract the money out of the fund and pay it into another bank account,” he said.
