Newsletter No. 3, March 2013

Return of non-concessional contributions

Last year, in my August 2012 Newsletter, I explained what you can do if you exceed your “concessional contributions cap” by no more than $10,000 on or after 1 July 2011.

In this Newsletter I will explain what you can do if you exceed non-concessional contributions cap.

Firstly, let’s make sure we are all on the same page.  Non-concessional contributions are personal contributions you made into your Self Managed Superannuation Fund (SMSF) without claiming a tax deduction.   The non-concessional contributions cap is $150,000 per year or $450,000 every three years for people under the age of 65 using the two year bring-forward rule.

Unlike the concessional contributions cap, the non-concessional contributions cap has not changed since 1 July 2007.  However, as we are all very busy people, it is still easy for us to exceed the non-concessional contributions cap without realising it. If you have exceeded your non-concessional contributions cap, don’t panic.  The trustee of your SMSF may be able to return the excess amount to you.  Let me explain how the superannuation law operates.

Under the superannuation law, once a contribution is accepted by your SMSF, the preservation rules apply.  This means, the trustee of your SMSF can only return contributions to you in very limited circumstances.  The circumstances outlined in the superannuation law are:

  1. the trustee must return the contribution within thirty days of becoming aware that the amount received is inconsistent with the age related conditions.  For example, a contribution received from a member who is aged 65 or over and did not satisfy the part-time work test;
  2. the trustee must return the contribution within thirty days of becoming aware that the member’s tax file number has not been quoted unless the tax file number is quoted within thirty days of the contribution being received; and
  3. unless the trustee receives a  notice within thirty days that the member is claiming a tax deduction on the contribution, the trustee must return the excess of any one-off fund-capped  contribution within thirty days of becoming aware that they received a contribution that is in excess of one  of the following:
  • if the member is 64 or younger on 1 July of the financial year – three times the amount of the non-concessional contributions cap (i.e. $450,000), or
  • if the member is 65 but less than 75 on 1 July of the financial year – the non concessional contributions cap (i.e. $150,000).

The Australian Taxation Office (ATO) has published ATOIDs explaining how the law operates.

ATOID 2007/225 explains where a member aged 65 made non-concessional contributions totalling $165,000 into his SMSF.  The contributions were made over four payments during the same financial year.  As you know the non-concessional contributions cap is $150,000 which means the member has exceeded the non-concessional contributions cap by $15,000.  Unfortunately in this example, the member is unable to have the excess $15,000 returned as each of the four payments do not exceed the cap on its own, but exceed the cap when combined.    The excess can only be returned to the member if it exceeded the cap in one payment (i.e. a one-off fund-capped contribution).

ATOID 2008/90 explains where a member aged 55 made non-concessional contributions to his SMSF by transferring an amount from his overseas bank account, which when converted to Australian dollars exceeded the bring-forward non-concessional contributions cap of $450,000 by $2,000.  In this example, the trustee of the SMSF is able to return the excess amount of $2,000 to the member as the contribution (i.e. a one-off fund-capped contribution) exceeded the non-concessional contribution in one payment.

Another thing you may want to know is what to do if the thirty day time limit has expired.

ATOID 2009/29 explains where a member made contributions into his SMSF without satisfying the “contributions standards”.  The publication states that if the trustee of your SMSF becomes aware that a contribution has been received when it should not have, the trustee can still return the contribution to the contributor even though thirty days has passed.  While the thirty day requirement imposes an obligation for the timely return of a contribution,   trustees are obliged to return any contribution that should not have been received in the SMSF, even if more than thirty days have elapsed.

Now, there is just one more thing you need to be aware of.  If you’ve made non-concessional contributions into your SMSF in various instalments in the same financial year and exceeded the non-concessional contributions cap and then return the excess amount to the contributor, when you shouldn’t have, the ATO will still assess you for the excess non-concessional contributions tax on the excess amount regardless that it has been returned.  ATOID 2010/104 explains where a member made a total of $1.2 million of non-concessional contributions in three instalments in the same financial year to his SMSF.  Some of you may remember that a transitional non-concessional contribution cap of $1 million applied during 10 May 2006 to 30 June 2007.   The member then requested the trustee to return $200,000 that exceeded the $1 million cap claiming he was unaware of the exact dates when the contributions were made.  Unfortunately, in this example, the ATO still assessed him with an excess non-concessional contributions tax on the $200,000 for reasons that he made the contributions into his SMSF knowingly and voluntarily.

The money in your SMSF needs to be there for your retirement.  It is a waste to lose your money in excess contributions tax when it can be avoided by maintaining good contribution records.

Monica Rule is the author of “The Self Managed Super Handbook – Superannuation Law for Self Managed Superannuation Funds in plain English”.  Her advice is general in nature and readers should seek their own professional advice before making any financial decisions.