ATO takes harsh view on refund of excess contributions

In a recently released Interpretative Decision, the ATO was asked whether a trustee could refund an in specie contribution of listed shares, the value of which exceeded $150,000.  The member contributed 3 parcels of shares with each parcel being contributed on the same day.  The issue was whether the 3 parcels of shares constituted a single contribution or separate contributions.  If a single contribution, then the shares could be refunded and the excess contributions problem solved.

It is worth repeating that the 3 parcels of shares were all contributed on the same day.

The ATO advised that each parcel of shares constituted a separate contribution as each parcel constituted a different and separate item of property and therefore the value of the 3 parcels could not be aggregated.  Consequently, the trustee could not refund the in specie contribution.

This Interpretative Decision has significantly devalued the ability of trustees to remedy excess contribution problems by reference to the “fund capped contribution rule”.  This rule requires a trustee to refund a contribution if the value of the contribution exceeds $150,000 or the higher limit of $450,000 (if the bring forward of non-concessional contributions has been invoked).

As the fund capped contribution rule applies on a contribution by contribution basis, the rule will only be invoked if the single contribution exceeds the relevant limit.

As each parcel of shares were (even though they were contributed on the same day) a separate contribution and the value of each parcel of shares did not exceed the relevant limit, the rule was not invoked and the contribution could not be refunded.

What would be the position if the member had, on the same day, transferred to their super fund $120,000 from bank account No 1 and $100,000 from bank account No 2 in respect of a financial year when the relevant cap was $150,000?  Would each transfer be treated as a separate contribution?  Based on the Interpretative Decision – the ATO would most likely say “Yes”.  Each transfer is a separate contribution and the fund capped contributions rule would not be invoked.

What would be the position if the member had in the morning transferred to their super fund $120,000 and then in the afternoon of the same day transferred $100,000 from the same bank account, in respect of a financial year when the relevant cap was $150,000?  Would each transfer be treated as a separate contribution?  Again, based on the Interpretative Decision – the ATO would most likely say “Yes”.  Each transfer is a separate contribution and the fund capped contributions rule would not be invoked.

The end result is that a trustee will only be entitled to refund a contribution if the contribution exceeds the relevant contribution cap, and the contribution is constituted by a single payment or a single transfer of property.

The fund capped contribution rule only applies to ordinary non-concessional contributions.  It does not apply to GGT non-concessional contributions or to personal injury contributions.

Reference ATO ID 2012/79 issued 14 September 2012.