SMSF members looking to time non-concessional contributions into their fund under the proposed bring-forward rules have to decide whether they should comply with the law as it stands or as it will be under the new rules, an SMSF legal expert has warned.
DBA Lawyers special counsel Bryce Figot said the new bring-forward rules were currently before the Senate, but had stalled there for some months, which meant any plans to use them may not be legitimate, despite the changes being backdated to 1 July 2020.
Figot said the question of whether SMSF members and their advisers should rely on the changes going ahead was dependent on what the outcomes might be for the member.
“Can we rely on these bring-forward rules being introduced, and so should we act on law that will probably exist or law that does exist?” Figot said during a webinar last week.
He gave an example of a member who had turned 65 in the past financial year and will be turning 66 in the current financial year, and pointed out that during the last financial year the maximum non-concessional contribution was limited to $300,000.
“If the proposed changes do take effect, the member instead might have put in $100,000 in the last financial year and the same in this financial year and then trigger the bring-forward provisions of $330,000, including an extra $30,000 because of indexation, for a total of $530,000,” he said.
He said the answer to deal with this situation regarding the law was “easy” and “to wait a few months more into this financial year, then we will probably know for sure”, but this would not work for a member turning 67 tomorrow.
“Should this member contribute $300,000 – that is, relying on the law that probably will exist or $100,000 relying on the law that does exist?” he said.
He said he did not believe there was a definitive answer to this question and would suggest the first course of action, but with sufficient information for the SMSF member to be aware of the issues related to either choice.
“If I was in this situation I would go for option one or if they were my client, I would explain the situation and nudge them towards option one,” he said.
“I would also say that if I am wrong, what is the worst that can happen? You will enter the excess non-concessional contribution system along with any taxes that come with that.
“I generally recommend to never do something that is not in accordance with law and I am not advocating for someone to commit a crime, but the flipside is not telling the client about all of the options and then the client has $200,000 less in superannuation to live off in retirement than they might have had otherwise.
“So it is still important to lay the cards out for the client so they can make an informed decision.”
