ATO Releases Taxpayer Alert re Excess Contributions

The ATO has issued Taxpayer Alert TA 2010/2 warning that SMSF trust provisions which are intended to circumvent the operation of the excess contributions caps will not be treated as being effective by the ATO.

These provisions operate by treating contributions which are excessive to be held on separate trusts from the trusts of the SMSF.  The rationale being that the excessive contribution, as it is held on a separate trust, has not been contributed to the SMSF and therefore no excess contributions tax can be imposed.

In the view of SUPERCentral’s lawyers, Townsends Business and Corporate Lawyers, such provisions are unlikely to be effective from both a trust law and tax law perspective.  Put very simply, a contribution has either been made to the SMSF and accepted as such by the trustee of the SMSF or it has not.  In the absence of some principle of law (eg mistake) or express provision of the SIS Act (rule relating to fund capped contributions) which permits the contribution transaction to be reversed, if the contribution has been made and accepted, it cannot be reversed.

Our lawyers, in their regular audit of the SUPERCentral Governing Rules, did consider such a provision but concluded that such a provision would be legally ineffective (on general trust law principles) as well as give rise to taxation and regulatory issues.  Consequently, the SUPERCentral Governing Rules do not contain such a provision.  The SUPERCentral Governing Rules do permit contributions to be returned in the circumstances permitted by the fund capped contribution rules and also to be returned under the equitable doctrine of mistake