Speaking to SMSF Adviser, AMP SMSF head of policy, technical and educational services, Peter Burgess, said that since this is a new process resulting from legislation brought in this year SMSF practitioners will need to help their clients understand what their assessment and individual notice means and what their best option is.
“Once a client makes an election to refund the excess non-concessional contributions it is irrevocable, so before acting on any of these election notices, they need to make sure it is a genuine excess situation,” said Mr Burgess.
SMSF practitioners need to ensure the excess is not simply the result of incorrect reporting, because they don’t want to be forcing amounts out of a tax-concessional environment unnecessarily, Mr Burgess said.
If the amount is genuine, in most cases having the excess released out of the SMSF is the best option for the client, he said, particularly in cases where the excess could trigger the bring forward rules.
“The other point to note is that the amount that’s refunded doesn’t need to be split proportionally between taxable and tax free,” he said.
This means that for individuals who exceeded the non-concessional cap in the 2013/2014 financial year and have since moved into the pension phase and have a large taxable component in their pension, it may be better for them to commute the pension and take out the amount that needs to be refunded and restart the pension.
“The refund can then come out of the taxable component, so then they may be able to restart the money with a higher proportion of tax-free money,” he said.
The ATO has announced it will begin issuing elections to individuals over the coming weeks, which will enable them to tell the tax office how they want their excess non-concessional contributions treated.
“Upon receipt of an election, where the choice is to have their [excess non-concessional contributions] (and associated earnings) withdrawn from their super fund, the ATO will issue the nominated super fund with a release authority to have the money withdrawn,” the announcement said.
“Individuals who leave their excess contributions in the fund will continue to be taxed on these contributions at the top marginal rate.”
The ATO said individuals can choose to withdraw excess non-concessional contributions dating back to 1 July 2013.
“Funds are required to return the release authority statement and payment to the ATO within seven days of receiving the release authority,” the ATO said.
“When funds have taken reasonable steps to return the release authority statement and payment within the legislative timeframe and have not been able to do so, the ATO will apply a practical risk-based approach in applying administrative penalties.”