Hi SMSFAAA Team

Thank you very much again.

Kind Regards

Jean Rey

Hi Jean

The excess contribution is only qualified on and reported as a reportable contravention if there has been a breach of Regulation 7.04 of SIS.

Regulation 7.04 is the rules that requires:

"Contributions can only be accepted in accordance with the applicable rules for the year being audited".

That is if the contribution was not allowed to be received and not refunded within 30 days there would be a breach of Regulation 7.04.

For the 2020/21 & 2021/22 years Regulation 7.04 allowed a member aged 67 and not over 75 to make a non-mandated contribution if they worked at least 40 hours over a 30 day period (being the "work test").

That is if they did not meet the "work test" in the 2020/21 year given that they were 74 years of age there would be a breach of SIS and you should issue a qualified audit report & lodge an ACR (if the contribution was not refunded within 30 days).

Note: it is not the excess contribution that causes the breach of SIS. The breach would be if they do not meet the requirement to make the contribution.

I also note that from 1 July 2020 (to 30 June 2022) there is also the ability to make a voluntary contribution in the next financial year for those aged 67 to 74 if they meet the work test in a year and their superannuation balance is less than $300,000.

Unfortunately regulation 7.04 has had a number of changes to it so the rules re contributions are complicated.

Regards

SMSF AAA

Hi Jean

Thanks.

1. With regards to the excess non-concessional contribution, the implications for the fund are that it cannot refund any excess contribution now, and must wait until it receives a release authority from the ATO. The member also cannot request a refund of the excess from the fund.

The process is as follows:

i. The member makes their non-concessional contribution and it appears as though the contribution is in excess of the non-concessional cap, the trustee must not refund the excess to the member at this point.

ii. The member lodges his/her personal tax return for 2021; and

iii. The super fund lodges its annual return for 2021.

iv. The ATO matches the fund/contribution data against the members personal tax records and determines there is an excess contribution.

v. The ATO issues an Excess Contribution Notice to the member – the member then has 60 days to agree to release the excess contribution plus 85% of the associated earnings, or retain the excess in the fund (this would be unusual as the penalties (47% tax on the excess) make it highly desirable to have it released).

vi. If the member agrees to release the excess, then the ATO issues the fund with a release authority and the fund must pay the excess contribution plus 85% of the associated earnings within 10 business days – it is only at this point that the fund needs cash to satisfy the release authority and pay the amount to the ATO.

There is the ability to refund contributions within 30 days of becoming aware of a contribution being made that is not in accordance with the regulations, refer SIS Regulation 7.04(4).

2. Similar to the above process the ATO also matches concessional contributions against an individual’s personal tax file data and determines whether or not they have an excess concessional contribution.

i. In the case of concessional contributions the individual may have carried forward unused concessional contributions and may or may not have excess contributions.

ii. If they have sufficient carried forward unused concessional contributions plus the current year’s contribution cap, then there is no excess contribution determination made.

iii. If they have insufficient carried forward unused concessional contributions plus the current year’s contribution cap, then an excess contribution determination is made and an excess concessional contribution notice is issued to the member; and

iv. A process similar to the above is followed to refund the excess, via the ATO.

If you wished to determine whether an excess concessional contribution existed then you could ask the member’s accountant (the one who takes care of his/her personal tax) to provide a copy of the data contained in the member’s personal tax agent portal. The fund accountant and personal accountant could be 2 different practitioners and this may prove difficult.

Normally from an audit perspective the auditor accepts the contributions as allocated by the member / trustees and it is then up to the ATO to determine if there is excess concessional and or non concessional contributions.

If there is no cash to refund the excess contributions (due to ATO direction) then shares will need to be sold or they will need to be transferred out in-specie to the amount required.

Thanks

SMSF AAA