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Hi SMSFAAA Team ,
Could you please guide me on the following:
I am doing audit of one SMSF for FY 2022 where total balance of the member as on 30th June 2021 was $1.64 Mn. As per guidelines he could do only $110k non concessional contribution during FY22 however he did contribution of $330k.
As per the returning guidelines ATO states that "You must return the contribution within 30 days of becoming aware that you cannot accept it. However the contribution was not returned within stipulated days, therefore it is breach of regulation 7.04."
I mentioned this to the accountant that “As per ATO guidelines Reg 7.04 acceptance of contribution is a reportable section. 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.
However, accountant if of the view that “The regulation 7.04 doesn’t cover the contributions where members go over the caps, it covers the contributions where members are NOT eligible to make the contributions because of age and TFN rules. If the members have gone over the cap and choose to opt that their contributions remain in the fund, they will pay tax at 45% in the fund. It is definitely not a breach.”
Many thanks
I also had an issue like this and some people were suggesting if the Deed calls for any excess contribution to be rejected you may be able to argue this path but I did not agree as it was in contract to the ATO's guidance and laws, if the ocntribution is an eligible one not sure the deed can reject it?
Option 1 election is also likely to be better for them but you need to check into some other factors like personaly income tax brackets and how mich earnings will be applied.
Hi Sandeep
If they are under age 67 then there is no breach of SIS and no ACR is required.
Yes, you should refer in your management letter that they should receive an excess NCC letter from the ATO based on their balance at 30/6/2021 and the amount of NCC's made in the 2021/22 financial year. That is point out that their cap limit was $110,000 for 2021/22 based on the superannuation balance in the SMSF (assuming this is their only superannuation account).
The cap rules are complicated as the auditor is normally not aware if the member has superannuation balances outside of the SMSF.
Thanks
SMSF AAA
Hi Sandeep
Yes the contribution rules are complicated.
Under SIS regulation 7.04 for the year ended 30 June 2022 member contributions could be received by the Fund if the member was under age 67 (even if they are over the cap amount). That is contributing more that the allowed contribution amount is not a breach of SIS if the member in your example was under age 67.
The member in your example will receive an excess non-concessional contribution notice from the ATO & they will have 2 options:
1) Advise the ATO which Fund is to pay to the ATO the excess NCC plus an associated earnings amount, or
2) Have the excess NCC remain in the Fund and they will be taxed at 47%.
Below is an extract of an example NCC excess from the ATO re the 2 options.
Thanks
SMSF AAA