Tax Office outlines process for ineligible downsizer contributions
The ATO has provided clarity on how funds should administer downsizer contributions where a member has made an ineligible contribution.
In an online update, the ATO explained that where a downsizer contribution is ineligible, the fund must re-assess the amount in accordance with both subregulation 7.04(1) of the Superannuation Industry (Supervision) Regulations 1994 and its trust deed, to determine if the amount can be retained as a non-concessional contribution.
“If allowed by the trust deed, the fund can either adjust the prior downsizing contributions to nil and report this amount as a non-concessional contribution if the member meets the age/work tests, or adjust the prior downsizing contribution to nil and return the contribution to the member,” it stated.
“Members who no longer have a super interest with the fund, or an insufficient amount being able to be returned, must have their contribution re-reported as non-concessional. This re-reporting must occur even if the contribution was returned because the member did not meet the age/work tests.”
Some or all of the contribution may be an excess non-concessional contribution (ENCC), it said.
“Regardless of the age of the member, if this is the case, the member will receive an ENCC determination,” it explained.
If the member receives an ENCC, the member has the right to apply for commissioner discretion where there were special circumstances or lodge an objection to the ENCC determination.
The ATO said the requirement to return an ineligible downsizer contribution if it cannot be accepted remains, even if the member is in pension phase.
“If a fund can’t return the contributions or can’t return the full amount due to an insufficient amount in the member’s interest, the fund must re-report the amount of the downsizer contribution which they can’t return to the member as a personal contribution,” it said.
“An amount released under these circumstances is treated as a super lump sum as it is a partial commutation of the member’s super interest. Being in pension phase doesn’t prevent a fund from complying with the release authority; however, it may mean the full amount can’t be released.”
Where the member’s available balance is lower than the release authority amount, the fund must release the maximum amount available.
Miranda Brownlee is the deputy editor of SMSF Adviser, which is the leading source of news, strategy and educational content for professionals working in the SMSF sector.
Since joining the team in 2014, Miranda has been responsible for breaking some of the biggest superannuation stories in Australia, and has reported extensively on technical strategy and legislative updates. Miranda has also directed SMSF Adviser's print publication for several years.
Miranda also has broad business and financial services reporting experience, having written for titles including Investor Daily, ifa and Accountants Daily.