A senior sector stakeholder has warned practitioners the ATO no longer applies a de minimis rule to small amounts of money that can lead to an SMSF member facing an excess contribution determination.
Colonial First State head of technical Craig Day said this is an important consideration when a member makes a personal deductible contribution that includes cents. To this end, the superannuation system can only process contributions of this type in whole numbers.
It means the ATO will round the contribution amount to the nearest whole number and if this results in some cents remaining, and the person’s concessional cap is exhausted, the leftover amount will be attributed towards the individual’s non-concessional cap. This in turn can lead to issues if the member has used their entire non-concessional cap for that particular income year as it will trigger the bring-forward provision.
Further, if the superannuant takes advantage of the non-concessional contribution cap bring-forward provision in the following financial year, they may face an excess contribution determination.
“[The ATO did have a de minimis mechanism], but not anymore is what I was told by the ATO when I was dealing with [a situation] with a small amount causing a large excess about 12 to 18 months ago,” Day told listeners of a recent FirstTech podcast.
He pointed out the regulator did offer a course of action super fund members could follow if faced with this predicament.
“We were told in situations like this, instead of that de minimis rule applying, which now no longer exists apparently, what the client needed to do is put in an application to have [the small amount of cents] that caused the problem either reallocated to a different year or disregarded so therefore it doesn’t trigger the bring-forward rule and cause all of the problems,” he explained.
According to Day, some practitioners are already putting into practice processes to guard against having their clients confronted with this set of circumstances.
“One thing I noted that some advisers do, generally where they’ve been burnt by something like this before, is [to have the client] always leave a buffer and never make non-concessional contributions right up to the full amount of the client’s non-concessional cap,” he said.
