Contribution confusion leading to preservation rule breaches

Contribution confusion leading to preservation rule breaches

Concerns have been raised that confusion among SMSF trustees surrounding the contributions refund regime is leading to significant breaches of the preservation rules.

Independent SMSF education consultant and former Cavendish Superannuation head of education and market research, Tim Miller, said one of the main issues he is seeing at the moment is a lack of understanding of how the new refunding rules operate in relation to excess non-concessional contributions.

“The primary problem is that people think once they’ve exceeded their non-concessional contributions they just pull that excess amount out rather than waiting for the advice from the ATO instructing them on when to do it,” Mr Miller told SMSF Adviser.

The main issue, he explained, is that the contribution itself can be a preserved amount of money until a condition of release has been met.

“The condition of release in this instance would be the receipt of determination from the commissioner, so by accessing the money prior to satisfying a condition of release, you’re repeatedly breaching the payments in the preservation rules,” he said.

Mr Miller said this can have other consequences for withdrawals in terms of taxation.

“So really the key message is that if you have breached the contribution caps, to just be patient and wait until the ATO have communicated with you,” he said.

Another concern relates to people using fund resources to pay for business expenses, Mr Miller added.

“[SMSF trustees understand] you’ve got these in house asset rules that allow you to invest in related parties but they don’t necessarily understand the way that they work and they think that they can use the fund’s resources, albeit a very small amount, to meet personal liabilities or business liabilities,” he said.

“They think the quick fix will be the quick draw down on the super fund and pay it back in fairly short terms but the reality is that the transaction generally isn’t allowed in the first place.”

Contribution confusion leading to preservation rule breaches
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