$300 Smsf Error Creates $53,000 Penalty

Unfortunately the accountant at the time also processed the $600 Fund establishment

cost as a non-concessional contribution of $300 to each member so tripping the 3 year non-concessional contribution bring forward provisions.

In the following year they contributed further non-concessional contributions of $150,000 and $414,724 respectively. They were made by way of a number of in-specie share transfers rather than a single contribution so any cap breach could not be rejected by the Fund. The Tax Office has now raised an Excess Contributions Assessment for the second member of over $53,000 based on a cap breach of $115,024, for the 2008/09 year all caused by the incorrect treatment of the $300 establishment fee.

Given the ATOs hardline attitude to this type of breach I am not confident of a successful outcome for the client notwithstanding that it is extraordinary that a $300 mistake could create a $53,000 penalty. This matter could have been avoided at the outset by refunding the establishment cost to the member, labelling it a concessional contribution or reducing the first contribution by $300.

The accountant, who gave me permission to share this story, is now working to try and rectify the situation for his client. I will let you know in a subsequent post if he was successful.

This case highlights the absolute necessity to check the level of available non-concessional caps before making a contribution and/or completing the returns. This should be done by referring back to the previous two years accounts to ensure that the position is completely clear.

DIY Superannuation trustees should also consider whether additional contributions may have been made to some other Fund in the previous two years. At Cavendish we (Ed: and other administrators who do this as a service) take particular care to uncover such situations before the returns are lodged as rectification is practically impossible once the ATO have made their assessment.

Good luck to the accountant and his clients. I fear they will need it.

David Busoli

Cavendish Superannuation Pty Ltd

by: Graham Parkes

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