Self-Managed Super Funds
Super & Tax Case Study
Q: What do Spiderman and the Australian Taxation Office have in common?
A: They both believe that with great power comes great responsibility.
Over half a million SMSFs now exist in Australia, with close to one million members. SMSFs are becoming increasingly sought after, with a 36% increase in the number of funds over the past five years. SMSFs can offer flexibility, control, lower fees and when managed well higher rates of return. However, the laws that regulate SMSFs are very complex and adherence with them is essential.
One such benefit is a tax concession on contributions to your Super Fund that are under the contributions limit. Any contributions over the relevant limit will be taxed at a much higher rate.
In a recent decision handed down by the Administrative Decisions Tribunal, it was held that a taxpayer had exceeded the contributions cap by $80,000 despite the fact that his net contributions totaled less than the relevant $450,000 (non-concessional) cap. The taxpayer had initially contributed $430,000 but withdrew half following the global financial crisis. Within the following year, he reinvested $100,000 back in the fund. It was held that his contributions total led $530,000 and he was therefore liable to pay excess contributions tax of 46.5% on $80,000 (the amount in excess of the limit). This amounts to $37,200 in tax.
The decision indicates the law will not be sympathetic towards taxpayers who are ignorant of the rules, and emphasis the necessity of reliable legal advice. The tribunal noted:
“I do not expect [the taxpayer] to understand the law himself – I accept it is complex – but I would have thought the taxpayer might have asked for some advice. That advice was readily available. I accept the taxpayer did not foresee the problem, but he should have done so.”
Southern Waters Legal has extensive experience in establishing and advising SMSFs, their trustees and their members. If you are interested in establishing a SMSF, have a SMSF, or are wondering if a SMSF would be right for you, do not hesitate to contact our office and arrange a meeting.
If you believe a Self-Managed Super Fund (SMSF) is right for you, we can help you get started.