Compensation & Contribution Rules for Super Funds/SMSFs:
When a Super Fund or SMSF receives compensation from a financial service provider, the tax treatment and classification of the payment depend on the circumstances.
If the fund engaged the provider and has the right to seek compensation, the payment allocated to a member’s account is not considered a contribution and won’t affect contribution caps.
If an individual personally engaged the provider and the compensation is paid directly to their Super Fund, it may be classified as a concessional contribution.
- If the individual directs the payment to their fund, it could be treated as a non-concessional contribution.
In cases where neither the fund nor the individual has a right to seek compensation, but a payment is received, it will generally be considered a concessional contribution.
It’s crucial to monitor contribution caps to avoid exceeding limits—$27,500 for concessional contributions and $110,000 for non-concessional contributions Exceeding the concessional cap may result in the excess being taxed at your marginal rate, with a 15% tax offset.
Understanding these rules helps ensure compliance and avoids unintended tax consequences.
Always seek professional advice to navigate complex scenarios and stay within contribution limits.
Credits
Sundaram Shanmugam
Smart SMSF Team
