How to apply fund-capped contribution limits to your SMSF

Money in the mazeThe ATO recently provided clarification around its position on fund-capped contribution limits for superannuation funds (ATO ID 2012/79, sub regulation 7.04).

The limits only come into play where:

1) A person under age 65 contributes more than $450,000 in a single contribution to a super fund, or

2) A person aged 65 or older contributes more than $150,000 in a single contribution.

Until now, there was confusion about what actually constituted a single contribution, but the ATO have now clarified this.

Let’s consider two examples to illustrate.

1) Commercial property

Karen, a 50-year old trustee of a self-managed super fund (SMSF) owns a commercial property in her own name valued at $500,000. On 30 June, Karen transfers the property to her SMSF, but only allocates $150,000 to the Fund. The remaining $350,000 is allocated to a contributions reserve before being allocated to the Fund within 28 days (i.e. in the next financial year).

Has Karen breached the fund capped contributions limits?

Whilst the use of a contributions reserve to allocate the value of an asset across different financial years is acceptable under sub regulation 7.08, the ATO have confirmed that this doesn’t override the fund-capped contribution rules in sub regulation 7.04. Therefore, in the example above, Karen has breached the fund-capped contribution limits and the excess amount must be returned to her which clearly isn’t possible where a contribution of property is made. To put it another way, had Karen’s property been valued at $450,000 instead, the contribution would have been okay.

2) Shares

Tony, a 67-year old architect, owns the following shares;

• ANZ $90,000
• BHP $50,000
• ORG $100,000
• WOW $60,000

– Total portfolio $300,000

Like Karen in the previous example, Tony transfers the shares to his SMSF on June 30 and allocates $150,000 to the Fund, and the remaining $150,000 to a contributions reserve for allocation in July.

Is Tony in breach of the rules?

In the case of share transfers, the ATO have confirmed that where there are multiple companies contributed in a single contribution, each company is treated as a separate contribution. Therefore, in Tony’s case, none of the companies exceed his fund-capped contribution limit of $150,000, meaning the contribution is valid. However, had Tony attempted to transfer $300,000 of shares in the same company to his SMSF, the contribution would have breached the rules as his fund-capped contribution limit is $150,000 pa.

Please note the above examples do not consider eligibility to contribute to super or account for the non-concessional contribution cap. Therefore, you also need to be mindful of breaches in these areas when considering fund-capped contributions.

 


This advice may not be suitable to you because it contains general advice that has not been tailored to your personal circumstances. Please seek personal financial and tax advice prior to acting on this information.Opinions constitute our judgement at the time of issue and are subject to change. Financial Planning Expert Pty Ltd does not give any warranty of accuracy, nor accept any responsibility for errors or omissions in this document.
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    Financial Planning Expert is an independent financial planning business based in Melbourne. We provide genuinely independent and conflict free financial advice. We’re experts in self-managed superannuation fund (SMSFs) advice and strategy, retirement planning, property and share investment advice, life and income protection insurance, tax planning, asset protection, estate planning and advice for Australian expatriates.