Leave contributions buffer to prevent breach

contributions buffer breach

SMSF members should be informed that maximising contributions will create problems where other monies have entered their fund but not been properly recorded.

Maxing out contributions in the lead-up to the end of the financial year may create a breach for SMSF members who have not been paying attention to what has already been added to their fund during the year, according to two SMSF practitioners.

SMSF Alliance principal David Busoli said dealing with possible breaches of contribution caps was an annual issue for SMSF members, particularly those looking to maximise their contributions but often forget about other monies that may come into their fund.

Busoli told selfmanagedsuper these may include spouse contributions and one-off payments, but a common factor was life insurance payments made within superannuation.

“People forget that life insurance premiums are considered to be a contribution and can lead to tax penalties for a breach of concessional contributions or trigger a three-year bring forward for a breach of non-concessional contributions,” Busoli said.

“The problem is the breach can be minor and it may take months or even years before the ATO issues a tax assessment. This can be a real problem where someone has two superannuation funds with one only holding the life insurance policy.”

Verante Financial Planning director Liam Shorte highlighted that more SMSF members may start receiving advice fee refunds from major banks, which will be treated as a contribution into superannuation.

“We are starting to see these come through now because the banks first had to pay those funds to the ATO, which are now directing them to superannuation funds and there are cases where people will not know this refund is coming,” Shorte told selfmanagedsuper.

“In the event one of these refunds is received, fund members can lodge a notice of intent to bring their own contributions under the cap, but have to do that before 30 June and include it with their annual tax return.”

Given these events, he suggested SMSF members not maximise their contribution caps each year.

“Just because we have $27,500 for concessional contributions and $110,000 for non-concessional does not mean it has to be used. Leave a small buffer of $500 to $1000 for those unexpected items that may create a breach,” he said.

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