SMSF practitioners should confirm whether a trustee can legally accept a contribution under existing superannuation legislation before considering the potential tax implications of a payment made to a fund, a sector specialist has advised.
Speaking at Accurium’s 2023 SMSF Compliance Day in Brisbane yesterday, Accurium head of education Mark Ellem suggested advisers may be using the wrong approach when addressing clients intending to make contributions to their superannuation funds.
“Anytime someone asks me the question, can I make a contribution or can my client make a contribution, you’re asking the wrong question because there’s nothing in the law about whether a person can make a contribution; it’s all about whether the trustee of the fund can accept a contribution,” Ellem told attendees.
“Where do the contribution cap rules reside? The tax act. These are getting mixed up with the contribution acceptance rules which reside in the SIS (Superannuation Industry (Supervision)) Act; two different pieces of legislation.”
He noted practitioners and members are continuing to consider putting money into an SMSF with only the contributions caps in mind and this is a fundamental flaw in their thinking.
According to Ellem, advisers should prioritise inquiries related to contribution acceptance rules based on the SIS Act first before delving into the potential risks associated with breaching contribution caps outlined in the Income Tax Assessment Act 1997.
“We need to ask the question first: can the contribution be accepted by the trustee? Once you answer yes to that question, the trustee can accept the contribution, then we look at what are the contribution cap consequences of the trustee accepting that contribution,” he noted.
“[For example], is it going to count towards my concessional cap [or] my non-concessional cap? Is it [a] personal injury [contribution] with no cap? Is it the downsizer, subject to [a] $300,000 [cap]? Is it a CGT (capital gains tax) lifetime cap or is it a recontribution of a COVID-19 temporary payment?
“Don’t confuse [contribution] caps with the contribution acceptance rules.”