SMSF members with lost or unclaimed super should be careful about how they claim that money and move it back into their hands as an incorrect transfer into their fund can trigger an excess contribution, according to an SMSF adviser.
SMSF Alliance principal David Busoli said the issue of reclaiming lost super needed care for those aged between 65 and 75 as any recovered amounts will be considered as unrestricted, non-preserved amounts, which can be paid directly into a personal bank account as a member benefit.
Busoli noted, however, that if it was paid into an SMSF, its receipt could cause problems with contribution caps and bring-forward provisions.
“If they [the ATO] are provided with the super fund’s bank account number, in the expectation that it will constitute a rollover, the fund will receive it as a member contribution,” he said in an update to clients.
“Since the work test has been removed, the fund is unable to reject it so it will be counted against the member’s non-concessional cap.
“This raises the possibility that it might inadvertently trigger either an excess contribution or the three-year bring-forward provision.”
Speaking with selfmanagedsuper, he said this scenario was likely to be a greater problem for SMSFs compared to rolling lost superannuation into an Australian Prudential Regulation Authority (APRA)-regulated fund due to the way contributions are handled.
“This is an issue for an SMSF because trustees have two account numbers – their own and the fund’s and need to consider where the unclaimed funds will go, while members of an APRA-regulated fund are unlikely to have its bank account details on hand,” he said.
“If the unclaimed super contribution exceeds the non-concessional cap, even by a small amount, it can start the three-year bring-forward provisions, and we saw this with a client who, due to a rounding error, exceeded their cap by a few cents and the three-year count started.”
KPMG Enterprise head of SMSF and estate planning Julie Dolan also flagged rounding errors related to contributions as an issue to watch out for, noting that fixing the problems due to a slight, inadvertent excess was difficult and time consuming.
Figures released by the ATO in February stated there is currently $16 billion in lost and unclaimed super across Australia, with $5.6 billion held by the regulator and the remainder by superannuation funds, which are required to report and transfer lost and unclaimed super to the ATO where the balance is $6000 or less.