SMSF members can contribute personal injury settlement payments into their fund without breaching contribution caps, but must ensure this happens within a short timeframe and with the correct trustee notifications.
BT technical consultant Tim Howard said while SMSF advisers and trustees may be familiar with the rules around total and permanent disability (TPD) payments, these differ for personal injury settlements, which are compensation for injury due to the fault of someone else paid by an insurer, workers’ compensation scheme or under a court order.
“When we contribute an amount that is an eligible personal injury payment to superannuation, we make that contribution by accompanying it with the personal injury contribution form and that will exclude that contribution from the member’s non-concessional cap,” Howard said during an BT Academy presentation today.
“We need to make sure we present this form to the trustee on [the day when the contribution is made] or before [that day] in order to exclude it from the non-concessional cap.
“In the event the contribution is made and the form is received after that date, there would be no ability for the trustee to reclassify that contribution and in most cases likely push the member over their non-concessional cap.
“The timeframe we need to be aware of [to lodge the form] is 90 days from the latter of the receipt of payment or the day on which the court order or written agreement [for settlement] was entered into.”
Howard said, unlike TPD payments, personal injury settlements, if held in retirement phase, do not count towards the member’s total super balance (TSB) or transfer balance cap (TBC).
“There are special modifications that apply under the TSB and TBC cap rules to exclude this amount from the client’s caps, therefore not impacting any of the various measures that are based on TSB eligibility to make a non-concessional contribution,” he said.
“Being excluded from the TBC also means the member can still move, in their personal TBC space, any of their own superannuation to retirement phase separate to the amount contributed under a personal injury contribution.”
