Breaches of the non-concessional contribution cap and the ATO
SPAA's technical director Peter Burgess explains how a recent decision by the ATO affects breaches of non-concessional contribution cap.
The Australian Taxation Office (ATO) has just released a decision that may have important implications for clients who inadvertently breach their non-concessional contribution cap.
In the ATO's view, it is not possible to treat the transfer of individual parcels of shares on the same day as a single contribution.
Therefore, if the sum of the individual parcels received exceeds the member's non-concessional contribution cap, the excess portion cannot be returned to the member and they will receive an excess contributions tax assessment.
The relevant regulation says that a superannuation fund must not accept any fund-capped contribution in a financial year for a member who exceeds their non-concessional contributions cap.
And if a fund does receive an amount inconsistent with this regulation, it must return the amount within 30 days.
It is the ATO's view that funds must not aggregate the total value of member contributions received for a person either within the fund or across other funds.
Instead, funds are required to only apply the rule on a contribution-by-contribution basis.
Therefore, the distinction between what are single and multiple contributions can be vitally important for excess contributions tax purposes.
If the transactions constitute a single contribution, any portion of the contribution that exceeds the member's non-concessional contribution cap must be returned and they will not receive an excess contributions tax assessment.
However, it the transactions constitute multiple contributions, no portion of the contribution in excess of the member's non-concessional contribution cap can be returned (unless the value of any parcel transferred on its own exceeds the member's non-concessional contribution cap) and an excess contributions tax assessment will be issued.
The ATO example relates to a member who was over age 65 when the 2011-12 financial year began and therefore had a non-concessional contribution cap of $150,000.
On 8 February 2012, the member contributed the following parcels of shares in three different listed companies to the self-managed super fund (SMSF):
- 2000 shares in ABC Ltd with a total market value of $42,000;
- 5500 shares in DEF Ltd with a total market value of $78,000;
- 3200 shares in XYZ Ltd with a total market value of $35,000;
In this case, it is considered each of the three parcels of shares constitutes a separate contribution.
Therefore, the member made three separate contributions to the SMSF totaling $155,000 in 2011-12.
As none of these three contributions exceeded $150,000, the SMSF trustee cannot return any portion of the contributions.
In this example, the member will have excess non-concessional contributions for the 2011/12 financial year and will receive a non-concessional contributions tax assessment.
In the ATO's view this principle applies regardless of whether the three parcels of shares in the above example are in the same company or different companies.
This approach requires the transfer of the three parcels of shares in this example to be recorded and reported to the ATO as separate contributions.
Implications for practitioners and SMSF trustees
When transferring different parcels of shares on the same day to a fund, the value of each parcel transferred should be considered a separate contribution for ATO reporting and contribution cap purposes.
If the aggregated value of the parcels transferred exceeds the member's non-concessional contribution cap, no portion of the excess can be repaid to the member (unless the value of any parcel received on its own exceeds the member's non-concessional contribution cap).
Care needs to be taken when placing orders for trustees to purchase listed shares, particularly in situations where it is likely that the purchase order will not be filled at the one time, or it is immediately filled but at various prices.
In these situations an increase in the share price by the time the order is filled may result in inadvertent breaches of the non-concessional contribution cap.
If this occurs there would appear to be limited remedial options available to the member given that each parcel purchased must be treated as a separate contribution and the refunding relief would not be available.
Peter Burgess is the technical director at the Self-Managed Super Fund Professionals' Association (SPAA).
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