For your self-managed super fund (SMSF) to receive concessional tax treatment, you must elect to be a regulated super fund and comply with the provisions and regulations of the:
- Superannuation Industry (Supervision) Act 1993 (SISA)
- Superannuation Industry (Supervision) Regulations 1994 (SISR).
Before accepting a contribution, you need to know what contributions you can and can't accept. If you get it wrong, your fund can be made non-complying.
This will generally mean that all assets and income of the fund will be taxed at the highest marginal rate in the year the fund is made non-complying. Income continues to be taxed at the highest rate while the fund remains non-complying.
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When contributions should be returned
When you receive a contribution from or on behalf of your member, you can only return it if:
- you cannot accept the amount under the SISA or the SISR
- the return is authorised by the principles of restitution for mistake.
Contributions a fund must not accept
The contributions your SMSF can accept are restricted by:
Each contribution must meet the first two restrictions. Contributions made prior to 1 July 2017 must also meet the fund-capped contribution limit.
In an SMSF, all members of the fund are also trustees of the fund. Members should not make personal contributions that the fund cannot accept. Contributions by third parties may be at risk of being against the requirements.
If your SMSF cannot accept the contribution of a member because of these restrictions, you must return the amount to the member or entity who contributed it.
You must return the contribution within 30 days of becoming aware that you cannot accept it. For an SMSF we consider you're aware that a contribution is in breach of the law when you become aware of the contribution itself. This would generally be on the day you receive the contribution.
We expect you to act with care, skill, diligence, and to:
- know which types of contributions breach the super laws
- have a process to work out whether a particular contribution breaches the super laws
- return non-acceptable contributions within 30 days of receiving them.
The ATO view is that the 30-day requirement obliges funds to return contributions without delay. The trustee remains obliged under SISR subregulation 7.04(4) to return the amount, even if more than 30 days has elapsed since the trustee became aware of the obligation.
Example: Excess contribution not returned within 30 day timeframe
Alice is 40 years old and a trustee and member of an SMSF. She makes a $1 million member contribution to the fund on 31 January 2017.
During the audit of her fund in August, the approved SMSF auditor points out that the fund has not complied with the super laws because:
- the contribution exceeded Alice's fund-capped contribution limit for the 2016–17 financial year
- the excess amount was not returned within 30 days of it being made.
Although Alice made the contribution, she claims that the fund wasn't aware that it had breached the fund-capped contribution limit. This is because her bank only issues paper statements every six months and she received the statement covering her contribution in early July 2017.
As Alice is both a member and trustee of the SMSF, the fund is taken to have been aware of the fund-capped contribution limit.
It is not reasonable that a trustee, acting with the level of care, skill and diligence required of a trustee of a complying fund, did not check the affairs of the fund within the required timeframe.
In addition to an administration penalty of 20 units, the trustee must return the excess amount. If this does not occur, the Commissioner of Taxation may also give Alice's SMSF a rectification direction requiring the excess amount of the contribution to be returned within a specified timeframe.
End of example
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