Senior SMSF Technical Specialist
A fund has received a release authority from the ATO to release a member’s excess non-concessional contributions (NCCs). Why is the fund receiving this authority and does the trustee have to pay it?
An authority to release excess NCCs will be issued to a super fund if a member has contributions in excess of their NCC cap and the member has elected to release their excess contributions from super. Usually this is the preferred option, as the alternative is for the member to elect to keep the contributions in super but pay tax of 47% on the excess amount.
If the member does not make a choice within 60 days of the ATO notifying them of their excess, the ATO will, by default, proceed with the first option and send an authority to the member’s super fund to release the contributions.
If the fund has a rollover compliant electronic service address, the ATO will send the authority electronically.
The trustee of the fund is required to release (ie pay) monies from the member’s super account to the ATO within 10 business days of receiving the authority. As the amount to be remitted will consist of the member’s excess NCC along with an additional amount (referred to as “associated earnings”), large sums may potentially need to paid to the ATO within a short time frame.
There are only limited situations where a trustee may reject a release authority such as when a member no longer has a balance in the fund or the member has a defined benefit interest. If a member does not have a sufficient balance to cover the amount stated in the release authority, the trustee is required to remit the member’s remaining balance and notify the ATO accordingly. If a member has commenced an account based pension with their excess NCCs, the trustee is still required to comply with the release authority and make payment of the required amount to the ATO.
In addition to remitting monies to the ATO, the trustee is required to report, via their ESA, that payment has been made to the ATO. Although the released amount is paid directly to the ATO, technically it is a tax free benefit payment to the member provided the monies are released in accordance with the authority. From these monies the ATO will deduct tax and any other government debts the member owes personally before refunding the balance to the member.
Trustees who do not comply with the authority may be liable for a non-compliance penalty of up to 20 penalty units (currently $5,500).
Given the legislated timeframes and consequences for not remitting monies to the ATO, it will be important for advisers and trustees to act quickly.
If you have clients who have received a determination from the ATO that they have excess contributions and you are not sure what to do next, check out our Super Companion for examples, tips and flowcharts summarising the steps to be taken.