Contributions into SMSFs: minimum standards
There are many compliance obligations for trustees of self managed superannuation funds (SMSFs). One of the simplest but most important is ensuring that contributions from members can be accepted into the fund. This involves reporting the tax file numbers (TFNs) of members to the ATO, ensuring non-mandated contributions are not accepted for members over a certain age, and observing certain restrictions on in specie (asset) contributions. If an SMSF inadvertently accepts a non-allowable contribution in error, it must generally be returned within 30 days of the fund becoming aware, otherwise breaches of the contribution rules may occur.
Broadly, whether a contribution to an SMSF can be accepted depends on the type of contribution, the age of the member making the contribution, certain caps, and whether the fund has the TFN of the member.
When a member joins an SMSF, they need to provide their TFN, which then needs to be passed on to the ATO through the registration process. It should be noted that members are not legally required to provide their TFNs. However, if a TFN is not provided, the fund cannot accept certain member contributions, including personal contributions, eligible spouse contributions and super co-contributions. Employer contributions, including salary sacrifice contributions and other assessable contributions, may also be liable for additional income tax of 32% on top of the 15% tax already paid.
As a trustee, you must ensure that any TFNs reported to the ATO for members are correct. If you do not know a member’s TFN, you cannot report an exemption code such as 444 444 444. According to the ATO, exemption codes like this are intended for use by banks/investment bodies for an exemption from withholding tax on interest and other investment income, and are not for use when an SMSF member has not provided a valid TFN to the trustee.
In circumstances where an SMSF mistakenly accepts a contribution it should not have, the fund must return it within 30 days of becoming aware of the error. The 30-day limit is a grace period allowing the fund to remove the contributions from the super system without breaching the payment or contribution rules. Failure of the SMSF to comply with the time limit does not affect the fund’s legal obligation to return contributions.
Even if a member has provided their TFN, the type of a contribution combined with the age of the member can affect what is acceptable. For example, mandated employer contributions such as super guarantee contributions from a member’s employer can generally be accepted at any time, regardless of the member’s age or the number of hours they work. Non-mandated contributions largely cannot be accepted if a member is aged 75 years or older.
Non-mandated contributions include the following:
- contributions made by employers over and above super guarantee or award obligations (that is, salary sacrifice contributions); and
- member contributions, including personal contributions, downsizer contributions, super co-contributions, eligible spouse contributions and contributions made by a third party such as an insurer.
Lastly, there are restrictions on when an SMSF can accept an asset as a contribution from a member. These are referred to as “in specie contributions”, which just means contributions to the fund in the form of a non-monetary asset. Generally, an SMSF must not intentionally acquire assets (including in specie contributions) from related parties to the fund; however, there are exceptions for listed shares and other securities, as well as business real property.