You may be the trustee and member of the fund which puts you in two roles at the same time. But do you know when it’s OK to accept contributions to your SMSF and when it’s not? And, if your SMSF has accepted a contribution, do you know whether it can be refunded?
There are only two situations when a contribution can be refunded:
- when the Superannuation Industry (Supervision) Act and Regulations do not permit the fund to accept the contribution, and
- the return is authorised where the contribution is refunded under the legal principle of ‘restitution for mistake’.
Prior to 1 July 2017, a fund could also not accept contributions in excess of a member’s contribution limit for non-concessional contributions which depended on their age. If the member was older than 65 the limit was $180,000 and if they were under age 65 the limit was $540,000.
There can be many people who contribute to your SMSF for you. It can include your employer, spouse, a parent for a child or you may make contributions for yourself. Whether a contribution can be accepted by the fund will depend on things like:
- Your age
- Whether you meet a work test if you are older than 65
- The type of contribution involved
- The amount you have in all superannuation funds, or
- Whether you have provided your tax file number (TFN) to the fund
Here are some examples that illustrate when contributions should be refunded to the contributor:
- Mark is 75 and has made a personal contribution to his SMSF
- Sally is 66 and does not work but makes a personal contribution to her SMSF
- Nick has not provided a TFN to his SMSF
- Peta has made a spouse contribution for her husband who is 67 and does not work
Here are some examples when the fund can accept contributions which are not refundable:
- Tran has made a personal non-concessional contribution of $400,000
- Makayla has a total superannuation balance of $1.8 million and has made non-concessional contributions of $200,000 to her SMSF
- Frank is age 60, retired and has made non-concessional contributions of $200,000 to his SMSF
The other situation in which contributions can be refunded is under the principle of restitution for mistake. If the contribution is made by ‘legal mistake’ it is more than the contributor just regretting they had made the contribution, or they had made an error in making the contribution. Legal mistake involves the receipt of the contribution when it was a payment intended for someone else or the contributor thought they had a legal obligation to contribute which did not exist. For a contribution to be treated to be made by mistake the courts consider that the contribution would not have been made if the contributor knew it was a mistake at the time of the contribution was made.
An example of a legal mistake would be the situation where an amount has been paid to the superannuation fund but was intended to be paid as rent to a landlord. The payment was always intended to be paid as rent but the superannuation fund incorrectly received the payment.
As an example of a contribution made to a fund that is not considered to be a legal mistake, the ATO have published Interpretative Decision ATO ID 2010/104. In the circumstances, a contribution of $1 million was made to the fund. The member who was also the fund trustee claimed that the error had occurred, and part of the contribution was refunded so they would remain within their non-concessional contribution cap. The error was allegedly not detected until the trustee received a bank statement which occurred every 6 months.
The ATO considered that no legal mistake occurred which would have allowed the relevant refund as the trustee should have recognised the issue at the time the contribution was made. They also considered that the amount refunded to the member should be repaid to the fund otherwise penalties could be imposed.
Therefore, as a trustee of your SMSF, it is worthwhile putting in place some checks and balances to work out whether the contribution can be accepted and the types of contributions which should not be accepted by the fund. Trustees can be personally penalised for a breach or the fund could have the fund’s compliance status placed at risk.
If your SMSF has received contributions that should not have been accepted or have been made in error as recognised under the law, as trustee, you should refund the amount within 30 days after the error has been discovered. However, the ATO says that contributions which are not permitted to be made should be refunded within 30 days of receipt. The reason is that you are responsible as the fund trustee to check whether the contribution should have been accepted on receipt.
Subscribe to SMSF News below to receive my latest articles straight to your inboxGraeme Colley, Executive Manager, SMSF Technical and Private Wealth, SuperConcepts
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