SMSF trustees who exceed their non-concessional contribution cap and receive a release authority for the amount from the ATO do not have to formally communicate to the regulator their intention to follow the instruction.
“[In this situation the trustee] has a choice of two [options], but it really is a choice of one. That is, [the trustee] has to either choose to refund or release the excess non-concessional contribution amount plus the associated earnings or [the trustee] can elect to leave the amount in the fund,” Smarter SMSF technical and education manager Tim Miller told attendees of a SuperGuardian webinar today.
“The default [position] of the ATO is that if it does not receive [confirmation to follow the instruction], it will assume [the member] has elected to proceed with the release authority because the ramifications of leaving the money in the fund [are so disadvantageous].
“[Leaving the money in the fund] means [the member] will be subject to [being charged] 47 per cent tax on that excess non-concessional contribution.”
Miller pointed out a refund of excess non-concessional contributions cannot be made directly from the trustee to the member and must be done through the ATO.
Further, he highlighted how severe the penalty associated with a breach of the non-concessional contributions cap can be.
“What the tax office does in these situations is it calculates associated earnings [to the excess] that apply for the financial year [in which] the contribution is made right up until the time the determination [of the excess and the associated earnings] is made,” he said.
“That associated earnings rate is up around 10 per cent, so it’s not based on actual earnings.”
He noted it represents one of the multiple definitions of earnings applied to the superannuation system the government is looking to add to by way of its proposed tax on total super balances above $3 million.
