Annie Dawson, senior SMSF technical specialist for Heffron, said trustees have an obligation to release NCCs within a certain time frame or face penalties from the ATO.
“An authority to release excess NCCs will be issued to a super fund if a member has contributions in excess of their NCC cap and the member has elected to release their excess contributions from super,” Ms Dawson said.
“Usually, this is the preferred option, as the alternative is for the member to elect to keep the contributions in super but pay tax of 47 per cent on the excess amount.”
Ms Dawson warned if the member does not make a choice within 60 days of the ATO notifying them of their excess, the ATO will by default proceed with the first option and send an authority to the member’s super fund to release the contributions.
“If the fund has a rollover-compliant electronic service address, the ATO will send the authority electronically,” she said.
Trustees are vital in the release of funds and are required to release or pay the money from a member’s super account to the ATO within 10 business days of receiving the authority.
This could require large sums of money, Ms Dawson said, as the amount to be remitted will consist of the member’s NCC as well as any associated earnings.
However, there are some situations where a trustee can reject a release authority.
For example, when a member no longer has a balance in the fund or the member has a defined benefit interest.
“If a member does not have a sufficient balance to cover the amount stated in the release authority, the trustee is required to remit the member’s remaining balance and notify the ATO accordingly,” Ms Dawson said.
“If a member has commenced an account-based pension with their excess NCCs, the trustee is still required to comply with the release authority and make payment of the required amount to the ATO.”
As well as remitting monies to the ATO, the trustee has to report the payment has been made via their ESA.
And although the released amount is paid directly to the ATO, technically it is a tax-free benefit payment to the member provided it is released in accordance with the authority.
The ATO will deduct tax from the released amount, as well as any other debts that may be owed before refunding the balance to the member.
“Trustees who do not comply with the authority may be liable for a non-compliance penalty of up to 20 penalty units which is currently $5,500,” Ms Dawson said.
“Given the legislated timeframes and consequences for not remitting monies to the ATO, it will be important for advisers and trustees to act quickly.”
