The new refunding rules for excess non-concessional contributions appear to create an opportunity for individuals to deliberately alter their tax-free and taxable components in their favour, says AMP SMSF.
The new legislation allows individuals to have their excess non-concessional contributions taxed at the top marginal rate, or elect to refund the excess portion and have it taxed at a much lower rate.
AMP SMSF’s Peter Burgess said while this is a “much fairer” system, it appears to leave the door open for individuals to deliberately make excess non-concessional contributions, and in the process wash away any taxable components in their fund.
“I think we are going to see much more debate and discussion during the course of this year as to the Part 4(a) tax avoidance implications of some of that,” Mr Burgess said.
“And the regulations of course have not yet been passed - they may address that - although at this point it looks unlikely that the regulations will [do so]. So I suspect we will see some debate and discussion over whether these new refunding rules have actually gone too far for some individuals.”
Mr Burgess also said there are some key aspects of this new legislation that practitioners and trustees should be aware of.
For example, taxpayers who are looking to refund their excess non-concessional contributions need to do it within 60 days of the original determination.
Practitioners should also recognise it is an irrevocable election, Mr Burgess said.
“Before they act on any of these refunding elections, make sure it is a legitimate excess situation, [and] that it hasn’t resulted due to a reporting error or something like that, because you are forcing amounts out of a tax concessional environment, and having the associated earnings taxed,” he added.
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