Excess non-concessional cap can trigger bring-forward rule
Gross excess concessional contribution counts towards the non-concessional cap and can inadvertently trigger a bring forward period or put clients in excess of their cap, warns a leading adviser.
At the recent ASF Audits Tech Seminar Day, Jemma Sanderson, director and head of SMSF and succession at Cooper Partners, said it’s important advisers are aware of how concessional contributions, excess deductions and non-concessional contributions can trigger different consequences.
“In terms of the way that the excess works, you get the notice from the tax office saying you’ve gone over your cap, they add it back to your income, and then you’ve got the option of electing to receive the refund from super or you pay it yourself,” she said.
“You have 60 days in order to make that election. Once the fund gets the release authority, it’s got 10 business days to release that.
“The important part with all of these excesses and dealing with them is that the money can’t go in and then you think ‘Oh, whoops, I’ve gone over my cap. I’ll just exit that money out of the fund’.
“You’ve got to wait for the tax office to send the relevant release authority through otherwise you can be in breach of the payment standards, or if you’re eligible to access your super because you’re over age 65, that doesn’t give you a credit towards releasing the money later.
“You’ve got to then release it again which isn’t necessarily the outcome that you’re after either.”
Ms Sanderson said if the benefit is in the pension phase, it can’t be released, so if you want that to occur, you have to commute back an amount from the pension in order to do so.
“If you elect to receive a refund of concessional contributions that is factored into the definition of your non-concessional cap,” she said.
“As a general rule, we get our clients to release all of those excess concessional contributions from super in order to make sure there are no issues from a non-concessional cap perspective.”
She said as an example, there’s no total super balance threshold that applies to concessional contributions, so a client can put in $27,500, claim a tax deduction for it, and have $10 million in super and there’s no total super balance threshold.
However, if the client decides to put in $50,000 as a concessional contribution that gross excess now is a non-concessional contribution.
“And now the total super balance is very relevant,” she said.
“If the client is over the $1.9 million threshold, then they’re going to have an excess non-concessional contribution that then has to be dealt with.”
Even if the excess is minimal, Ms Sanderson said, all the procedural administrative requirements remain in place that have to be followed.
