A senior executive of a major accounting firm has warned practitioners to take extreme care over rounding procedures with regard to reporting SMSF contributions to avoid harsh compliance penalties.
KPMG Enterprise head of SMSF and estate planning Julie Dolan told delegates at SMSF Professionals Day 2023, co-hosted by selfmangedsuper and Accurium in Brisbane last Thursday, that even the smallest rounding error when reporting to the ATO can lead to a suboptimal outcome where members can face severe tax penalties.
To illustrate this point, Dolan made reference to a recent case where an SMSF member was issued an excess non-concessional contribution notification extending back to events relating to the 2018 income year and the subsequent financial years.
The situation saw the member make use of the non-concessional contributions bring-forward provisions via a contribution of $200,000 in the 2019 income year and a further $100,000 contribution in 2019/20.
However, due to rounding being applied in the individual’s personal tax return, but not the SMSF annual return, an amount of $0.05 included in the fund’s annual return deemed the member ineligible to make the final $100,000 contribution in the 2020 financial year. This in turn led to the member receiving an excess non-concessional contribution notice of $100,000 and potentially facing a tax liability of $47,000 should the excess amount be retained in the fund.
Further, Dolan noted these situations do not leave many options for fund members to appeal.
“The matter was referred to me and the accountants involved are pushing through for an objection with the ATO, but I’m saying it’s not a mistake so you can’t apply for an objection,” she said.
“I’ve asked the ATO and it said we can apply for special discretion, they’ll pick it up from their end and then make a manual adjustment.
“So we’ll resolve it, but the amount of time and stress [is significant including] the heartache for the client in receiving an assessment for a $47,000 tax bill [triggered by] $0.05.”
She pointed out this scenario has been seen before and the size of the amount that triggers the compliance breach is irrelevant.
“It doesn’t matter if it’s $0.05 or $1 or $10, it’s a trigger event,” she revealed.
“So please beware of the [application of] rounding.”
Julie Dolan will discuss additional super contributions issues and strategies at SMSF Professionals Day in Melbourne on 1 June and Sydney on 8 June. To register for the event, please visit https://web.cvent.com/event/e52ab0af-a2d3-46ef-bd98-4c91b6509c7a/summary?RefId=Summary.