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I am currently auditing a 2021 super fund - in July 2022.
The Super fund has a sole member who is 68 year old and does not meet the work test in 2021 or 2022.
The member has put through a $120,000 downsizer contribution.
I have called out the contribution as the property was held for less than 10 years.
And requested it be moved to Sundry creditors
I am assuming a contravention of SIS Reg 7.04
What to do for the 2021 year? – do you agree?
What to do for the 2022 year? The $120,000 is still in the super fund as a creditor. Another contravention?
Should it just be should a creditor in the 2021 & 2022 years?
Are there any other contraventions required – is so for both years?
Now in the 2023 year the member can make contributions – due to change in Legislation.
I assume the best course of action is physically withdraw the funds, then the member can re-contribute – rather than journal entries.
Also should interest be charged on the $120,000 in all 3 years up to its withdrawal as a creditor?
Hi Peter
Yes if the property was not owned for 10 years the downsizer contribution rules have not been met and this would be a breach of SIS regulation 7.04(4) if the contribution was not returned within 30 days of the trustees becoming aware of the error.
The ATO provides guidance at re the 30 day rule at:
The ATO states:
"You must return the contribution within 30 days of becoming aware that you cannot accept it. For an SMSF we consider you're aware that a contribution is in breach of the law when you become aware of the contribution itself. This would generally be on the day you receive the contribution."
We expect you to act with care, skill, diligence, and to:
know which types of contributions breach the super laws
have a process to work out whether a particular contribution breaches the super laws
return non-acceptable contributions within 30 days of receiving them.
The ATO view is that the 30-day requirement obliges funds to return contributions without delay. The trustee remains obliged under SISR subregulation 7.04(4) to return the amount, even if more than 30 days has elapsed since the trustee became aware of the obligation."
On the above basis that it was not returned within 30 days of being received in error I would qualify the audit report for the 2020/21 & the 2021/22 year and lodge an audit contravention report re both years.
The amount of the contribution which cannot be accepted by the trustee should be treated as a creditor of the Fund. My view is that you would not accrue / pay interest re the amount as it is not a loan to a Fund but rather a contribution made in error.
The $120,000 must be paid back to the member, who then could make a new contribution back to the Fund (assuming they meet the total superannuation balance / age requirements / contribution limits for that year).
I note that I have assumed that the member was aged over 67 when the contribution was received in the 2020/21 year (& did not meet the work test) so there was no ability to treat the contribution as a non concessional contribution in that year.
If other auditors have a differing view of their approach to this issue please let us know.
Thanks
SMSF AAA