A contribution is defined as anything of value that increases the capital of a superannuation fund provided by a person whose purpose is to benefit one or more particular members of the fund or all of the members in general. Ordinarily, the auditor examines all contributions made to the SMSF to assess whether they have been made in accordance with the fund’s governing rules and that in accepting the contribution, the SMSF is not contravening the SISA and SISR. In making this assessment, the auditor identifies the type of contribution made, the age of the member and the source of the contribution.
The auditor tests that the SMSF has accepted contributions in accordance with the SISR, which are either:
- mandated employer contributions received irrespective of the member’s age, such as SGCs, superannuation guarantee shortfall, award related and certain payments from superannuation holding accounts;
- member contributions or employer contributions (except mandated contributions) when:
- the member is under 65 years old;
- the member is not under 65 years but is under 70 years and has been gainfully employed at least on a part-time basis (applying a ‘work test’) during the financial year in which the contribution is made;
- the member is over 65 years but is under 75 years and has a total superannuation balance of less than $300,000 (at the start of the year) and has satisfied the work test in the preceding 12-month period when the contribution is made. This work test exemption can be used in conjunction with the unused concessional contribution cap opportunity contribution category; however, this is a once-off opportunity; or
- the member is not under 70 years but is under 75 years and has been gainfully employed at least on a part-time basis during the financial year in which the contribution is made and the contribution is received no later than 28 days after the month end when the member turned 75 years, and, in the case of a member contribution, it is made by the member;
- other contributions for a member who is under 65 years of age;
- contributions received at a later date in respect of a period in which the member met the age restrictions; or
- downsizer contributions if the member is 65 years or older and eligible.
The auditor also tests that contributions are:
- within contribution caps specified in the SISR and the ITAA, being:
- if the member is 64 years or less on 1 July of the financial year – three times the amount of the NCCs cap; or
- if the member is 65 years but less than 75 years on 1 July of the financial year – the NCCs cap; and
- for a member for whom a tax file number (TFN) has been supplied.
The NCC cap is 4 times the concessional contribution cap, or zero if the member’s total superannuation balance (TSB) exceeds the general transfer balance cap (TBC) as at the start of the income year the contribution is made.
A member under 65 years of age may be entitled to bring-forward up to three years’ NCC in a single year. The ‘bring-forward’ rule is triggered in a year where a member makes a NCC that is greater than the cap. The amount that is able to be contributed will depend on the member’s TSB at the start of the year, as follows:
Total superannuation balance at start of year
Maximum NCCs using bring-forward
< $1.4 million
3 x the single year
$1.4 million - $1.5 million
2 x the single year
$1.5 million - $1.6 million
1 x the single year
+ $1.6 million
If a member has a TSB below $1.4 million at the start of the year and trigger the bring-forward rule without maximising it, their TSB at the start of the following 2 years will determine their ability to complete the bring-forward.
In verifying the appropriateness of contributions received, the auditor considers factors including:
- the type and source of the contribution;
- the age of the member;
- whether a TFN has been provided;
- the amount contributed; and
- the timing of when the contribution was made.
Ordinarily, the auditor checks to see that the classification of contributions are appropriate and allocated to the correct member account (see paragraphs 241 to 244 of this Guidance Statement).
There are very limited circumstances where a SMSF trustee can return a contribution to a member or employer, such as:
- A contribution received from a member who does not satisfy the age restrictions.
- A member contribution received for whom the fund does not have a TFN, which has to be returned to the contributor within 30 days of becoming aware that the amount being received is inconsistent with the regulations. The fund does not have to return such contributions if the member’s TFN is provided for superannuation purposes, within 30 days of the amount being received by the trustee of the fund. Contributions are returned in accordance with the ‘law of restitution’. The limited examples of the operation of the law of restitution include:
- an amount paid to a superannuation fund by mistake and was intended for a different purpose; and
- an amount is paid to a superannuation fund that is greater than intended, for example, because of a clerical, transcription or arithmetic error.
A SMSF is not able to return a contribution if it is in excess of the member’s contribution limit. The excess contributions process is initiated by an ATO Determination, which may provide the opportunity for the fund to return some or all of an excess contribution.
Audit procedures on returning or refunding of contributions may include checking cash movements and validating receipts and payments along with substantiation of contributions received from employment arrangements.
With respect to the Government co-contribution, the auditor ordinarily checks that the co-contribution has been allocated to the correct member.
In-specie contributions are contributions to a SMSF where a physical asset (for example, a commercial property) or an intangible asset (for example, a share or an option) are contributed to the SMSF on behalf of a member without any cash being exchanged.
Where contributions are accepted in-specie, the auditor assesses whether:
- the fund’s governing rules permit in-specie contributions; and
- the SISA prohibitions on acquiring assets from related parties (including members) have been satisfied.
Once it is established that the in-specie contribution may be accepted, the auditor assesses whether the in-specie contribution is:
- within the contributions cap;
- valued at market value; and
- not in breach of any other SISA prohibition.
A downsizer contribution received from a member over the age of 65 must be accompanied by a Downsizer contribution into superannuation form. The form ensures the contribution is not counted towards the member’s contribution caps, enables a member to make a contribution without satisfying the work test, and permits a member with a TSB in excess of $1.6 million, to contribute up to $300,000 into superannuation.
Where downsizer contributions are accepted, the auditor assesses whether:
- the fund’s trust deed permits downsizer contributions;
- there is sufficient evidence to confirm the member’s eligibility to make the contribution; and
- the member has not utilised the downsizer contribution opportunity previously.
Key risk areas relating to downsizer contributions may include:
- the 10 year holding period - one member of the couple must have owned the property for at least 10 years;
- the property is at least partially exempt from CGT under the main residence exemption; and
- the sale contract is dated on or after 1 July 2018.
Use of Reserves
Where reserves are present in a SMSF, an auditor ordinarily checks to ensure the use of the reserves by the trustee is appropriate for the fund within the requirements of the SISA and SISR, in accordance with the fund’s trust deed and investment strategy, and ATO guidance provided in respect of the use of reserves.
If the reserve was established prior to 1 July 2017, the ATO has indicated that it can be maintained by the SMSF if it is not being used to circumvent the various caps and thresholds introduced from 1 July 2017. This includes manipulation of the TSB in order to make contributions to the fund that are otherwise prohibited by reference to the level of the TSB, a higher allocation to the retirement phase, and access to the segregated method to calculate the ECPI percentage.
Funds maintaining investment reserves should consider the ongoing appropriateness of these reserves, as they are likely to attract regulator attention. If a SMSF still operates an investment reserve, allocation to members’ accounts should take into consideration the return on the investments, any costs attributable to the members’ accounts, and the level of the reserves held by the fund.
For contributions held in an unallocated contribution suspense account (formerly a contributions reserve), the auditor checks to ensure the amounts have been allocated to members’ accounts within 28 days after the end of the month in which the contributions were received.
Allocations from other reserves will be classified as concessional contributions unless the allocation to member’s accounts is less than 5 per cent of the member’s opening balance in the year of the transfer and all members receive an allocation.
See ATO Tax Ruling TR 2010/1 Income tax: Superannuation contributions.
See regulation 7.04 of the SISR.
The basic work test for accepting contributions is to work for remuneration for at least 40 hours in a continual 30 day period within the year the contribution was made.
ITAA 1997 section 292-85(2).
See sub-regulation 7.04(4)(a) of the SISR.
See ATO ID 2010/104 Excess contributions tax: restitution of a ‘mistaken’ contribution, which includes case citations.
The ‘fund-capped contributions’ limit (former regulation 7.04(3) of the SISR) has been repealed for non-concessional contributions from 1 July 2017.
See ATO form Downsizer contribution into superannuation (NAT 75073).
Section 115 of the SISA.
SMSF Regulator’s Bulletin SMSFRB 2018/1 The use of reserves by self-managed superannuation funds.
See sub-regulation 5.03(1) of the SISR.