An SMSF specialist practitioner has warned advisers to be wary of the amount of time it takes for excess contributions to be detected and resulting notices of these breaches to be issued by the ATO using its data-matching processes.
“Generally you have to lodge the super fund’s return and the [trustee’s] personal tax return for any data-matching to occur before an excess notice gets issued by the ATO and [this] is taking a long time,” Cooper Partners Financial Services director Jemma Sanderson said during a presentation at the Tax Institute 2020 National Superannuation Online Conference held last week.
To illustrate the point, Sanderson shared her firm’s experience with a situation where an SMSF had made excess contributions in the 2019 financial year.
“We lodged the returns by August 2019 for the 2018/19 year and we didn’t get the excess notification until February,” she said.
“[Because] this was a non-concessional [contributions cap breach] the associated earnings accrue up to that point from 1 July of the year of the excess. So it was a substantial amount of money and there’s not a lot you can do about it because you can’t release the money until the tax office tells you to.”
According to Sanderson, the best strategy is to strenuously avoid breaches of the contributions caps even though procedures exist to correct these occurrences.
“It is still far superior to not have an excess to start with. I would always aim for that because although [the ability to return the excess] is available, it’s a bit of a nightmare to administer,” she said.
“A $20 excess involves the same administration and requirement as a $20,000 excess.”
In addition, she warned against complacency if the excess amount is small.
“Some people might say for [the sake of] $20 or $2000, ‘I can’t be bothered with the process of releasing the amount from super, I’ll just pay the tax’,” she said.
“But you need to be really careful because if you don’t release the excess concessional [contribution] from super, then [that amount] will count towards your non-concessional cap and it’s the gross amount of the excess, not the net [amount] after tax.
“You need to be really careful there because that could end up pushing you over the single-year limit in a particular year and trigger a bring-forward [provision] which was unintentional at the time.”