Did your super fund receive a compensation payment?
Is a financial services compensation payment to your superannuation fund a contribution?
New guidance from the Australian Tax Office is helping to clarify whether compensation payments to superannuation funds are considered to be contributions.
Financial services organisations have been providing the compensation payments in response to inappropriate charges – or being overcharged – for insurance premiums or services that individuals hadn't received.
The problem for some people is that where these compensation payments are treated as a contribution to their superannuation fund, they may exceed their contribution cap or attract Division 293 tax (a 15% tax on super contributions imposed on those with combined income and super contributions of $250,000 or more).
How will the compensation payments be treated?
In general, the treatment of the compensation depends on who engaged the financial services provider. In general:
- Super fund engaged the financial services provider and compensation paid to the fund – compensation not treated as a contribution.
- Individual engaged the financial services provider and compensation paid to the fund but not at member's discretion – compensation is a concessional contribution in the financial year it is received.
- Individual engaged the financial services provider and compensation paid to the fund at member's discretion - compensation is a non-concessional contribution in the financial year it is received
Where neither the member of the fund or the financial services provider had a right to seek compensation, the amount will be a concessional contribution in the financial year it is received by the fund.
Have you received a compensation payment?
If you have received a compensation payment from a financial services provider and the payment means you have exceeded your contribution cap, or are liable for Division 293 tax, there is a potential solution to avoid an adverse impact where you did not have control over the payment. In these cases, you can apply to the Tax Commissioner to exercise his discretion to disregard excess contributions or reallocate them to another year.
Talk to your accountant
Superannuation contributions can be tricky and if you've been – or likely to be – the recipient of a compensation payment, speak to your accountant on 02 9957 4033 for further advice.
This article is provided for information purposes only and correct at the time of publication. It should not be used in place of advice from your accountant. Please contact us on 02 9957 4033 to discuss your specific circumstances.