Fettes said there have been some recent reviews by the Australian Financial Complaints Authority regarding compensation awards and the Compensation Scheme of Last Resort.

He said the relevant limit was generally dependent on who engaged the financial services provider and who had a legal right to the compensation.

“The key elements are who is engaged, who engaged the provider, and who has the legal right to the compensation?” he said.

“If we say this perhaps was bad advice, and then a right arising from that, we need to think about who the client was and who has the right of compensation.”

He continued that a compensation amount received by a super fund will typically be cap tested in certain cases, particularly where the individual member has the right of compensation.

“There's that nexus more that the service has been obtained by the member, and the member has the right of compensation.”

“But of course, just because that's how the right arose doesn't mean the money might not end up in the fund, so we have to think also about the mechanism of how it gets there.”

He continued that if the amount was paid by the relevant provider, but paid at the member’s direction, meaning they had input and agency on the money going to their super fund rather than their bank account, it is essentially considered an after-tax, non-concessional contribution in the year of receipt.

“The only way that might become concessional is if the member then files their notice of intent, so they claim the deduction, such as it becomes a personal deductible contribution and therefore accessible and treated as part of their contract, their concessional contribution caps.”

“However, if it's paid by the provider directly to the fund and not at the member’s direction, it's essentially a payment on behalf of the member by someone else and that falls into the bucket as a concessional contribution in the receipt.”

He added that this scenario may push the issue into territory where the Commissioner’s discretion could be relevant.

“However, if paid to the member personally and then contributed, that is the standard one, and you won’t be surprised. That's where it's clearly a non-concessional contribution, unless it's a personal deductible.”

Furthermore, Fettes said, if neither the individual member nor the trustee on the SMSF had the right of compensation, it is considered a contribution by someone else.

“A contribution made by a member or perhaps by a member's spouse that's allocated to them is typically going to be non-concessional unless the deduction is claimed as a contribution on behalf of a member by someone else.”

“Essentially, compensation amounts that end up in the super fund need to be considered carefully in terms of contribution risk.”