Trustees need to have a thorough understanding of the two situations in which SMSF contributions can be refunded in order to avoid placing their fund’s compliance status at risk, an SMSF expert has warned.
SuperConcepts SMSF technical and private wealth executive manager Graeme Colley said an SMSF contribution could be refunded if it was not permitted under the Superannuation Industry (Supervision) (SIS) Act and SIS Regulations, or if the contribution was lawful but made in error.
In a blog post on the AMP Capital website, Colley noted that, depending on the circumstances in which a refundable contribution was made, there would be differences to the 30-day time frame allowed for the refund.
“If your SMSF has received contributions that should not have been accepted or have been made in error as recognised under the law, as trustee, you should refund the amount within 30 days after the error has been discovered,” he said.
“However, the ATO says that contributions which are not permitted to be made should be refunded within 30 days of receipt. The reason is that you are responsible as the fund trustee to check whether the contribution should have been accepted on receipt.”
Highlighting the difference between the two situations, he said a contribution would only be considered a “legal mistake” if the payment was intended for someone else or if the person making the contribution believed the payment to be a legal obligation.
In the event of a contribution being made that was not a legal mistake, trustees would be held to account for not recognising the unlawful contribution at the time the payment was made, he added.
“It is worthwhile putting in place some checks and balances to work out whether the contribution can be accepted and the types of contributions which should not be accepted by the fund,” he said.
“Trustees can be personally penalised for a breach, or the fund could have the fund’s compliance status placed at risk.”