Of late, there have been several compensation payments made by financial services providers to customers that were inappropriately charged or overcharged for insurance premiums or services they did not receive.
Is a financial services compensation payment to your superannuation fund a contribution?
New guidance from the ATO helps decipher whether these compensation payments are treated as contributions to your fund. 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).
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.
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.
Need further help?
Our specialist Superannuation accountants have extensive experience in the tax and compliance issues specific to super and self-managed super funds. With our expert guidance, you’ll have peace of mind that you are ticking all the right boxes and avoiding any risk of non-compliance.
Contact us on (07) 3023 4800 or at firstname.lastname@example.org to organise a chat about your superannuation goals.
You can find out more about working with Marsh & Partners here. As your Absolute.Account.Ability partner we’re on a mission to make your business life better. We’ll help you set goals for your business, devise an Action Plan to make them happen and meet with you regularly to ensure you stay on track.
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GENERAL ADVICE WARNING: This information has been prepared without taking into account your objectives, financial situation or needs. Because of this, you should, before acting on this information, consider its appropriateness, having regard to your objectives, financial situation or needs. We suggest you obtain specific financial advice from a licensed financial advisor.
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