SMSF Technical Education & Strategies

Can excess non-concessional contributions be returned to you ?

Non-concessional contributions to your SMSF are subject to limits. They are also subject to a 3yr bring forward rule (see previous article). The question then arises, that if you exceed these limits, what happens next ? Can you just have the excess returned ?

The answer is mixed. Its yes and its no. It all depends on the amount of any single contribution.

 

SIS regulation 7.04 basically says that a super fund must not accept any non-concessional contribution if it is in excess of the member's non-concessional cap, and that a refund must occur to the member within 30 days of the fund becoming aware that the amount received is excessive. So in other words, if the amount received in any one single contribution is:

 

- more than $450,000 for a member who is 64 or less on 1 July, or;

- more that $150,000 if the member is 65 but less than 75

 

then a return of capital can occur for the member. But how much ? Is it just the excessive amount, or is it the entire contribution ? ATO ID 2008/90 clears this up - it is only the excessive amount. So for example, if your aged 58, and you make a non-concessional contribution of say $500,000, it is only the $50,000 excessive amount that can be returned to you.

 

What if you exceed the non-concessional contribution cap over the aggregate of multiple contributions throughout the year ?

This is where things start to turn ugly. Whilst the SIS regulation above does not make reference to whether or not the trustee must aggregate contributions, or consider each one separately, the ATO ID 2007/225 does provide guidance:

 

"Superannuation funds will not be required to aggregate the total of member contributions received for a person either within the fund or across other funds. This rule applies on a contribution-by-contribution basis, not a year basis of any other basis."

 

What this effectively means is that if you make contributions over the year that are excessive in total, but no single contribution by itself is excessive, then you cannot have an amount returned to you.

 

This clearly puts the onus on the member to make sure that they are aware of all the contributions they have made to all superannuation sources and to make sure they do not breach their caps.

 

Example 1:

Greg is 56 years old and makes the following non-concessional contributions (NCC) over the 2010/11 year:

 

$200,000 August 2010

$200,000 January 2011

$100,000 June 2011

 

Greg's total non-concessional contributions are $500,000, which is over his $150,000 NCC limit. This triggers the bring forward rule, which means he can contribute $450,000 over the 3 year period. However, he is over this limit also, and given none of the contributions were in themselves over the $450,000 limit, none of those amounts can be returned. Therefore, he will be subject to excessive contributions of $50,000, and a penalty tax rate of 46.5% on that amount. Ouch !!

 

Example 2:

Lets now assume Greg makes the following contributions instead:

 

$20,000 August 2010

$20,000 January 2011

$500,000 June 2011.

 

In this instance, the final contribution of $500,000 as a single contribution is $50,000 over his NCC bring forward limit of $450,000 and hence $50,000 can be returned to him by the fund. However, he will still have excess contributions of $40,000 due to the first two contributions, and again, a penalty tax rate of 46.5% on this amount.