STRATEGY
Retaining the excess
In the event an SMSF member breaches their contributions caps, it can be instinctive to refund the amount in excess. However, in some situations retaining the excess in the fund can be beneficial, Meg Heffron writes.
MEG HEFFRON is managing director of Heffron.
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After several false starts since 2007, the rules for excess contributions today are relatively straightforward and logical. If an individual goes over the relevant cap, they can choose to take a refund out of superannuation. The benefits being: • For excess concessional contributions – members can refund 85 per cent of the excess concessional contributions. Choosing the refund option makes no difference to the tax paid in relation to the excess. However, it does mean the excess will not count towards the member’s non-concessional contributions cap. For many people this makes sense – why use up the non-concessional contributions cap with a contribution that will not create a tax-free
component and will be taxed at 15 per cent in the fund? A far better approach would normally be to refund as much as possible and contribute whatever is leftover (after paying additional tax) as a normal non-concessional contribution. • For excess non-concessional contributions – members can refund the excess nonconcessional contribution plus 85 per cent of the ‘associated earnings’ amount (notional interest on the excess contribution). Choosing the refund option means extra taxes will be calculated in a different way. Rather than being subject to excess non-concessional contributions tax (47 per cent on the amount of the excess contribution itself that is paid from the superannuation fund), the member will be subject to extra personal
