How can I process a refund of excess non-concessional contributions and its earnings in Class?
While technically you can also process such a refund for pension accounts without observing the proportional rule. Such functionality is not currently supported in Class due to the complexity involved in maintaining pension components, PAYG calculation and the pension minimum and maximum estimate.
We recommend this workaround:
- Commute the pension back to accumulation
- Process the lump sum payment
- Re-establish the pension with the remaining balance
Jayden inadvertently contributed too much to his SMSF and breached the non-concessional contribution caps by $50,000 for the 2013/14 FY. He received a written determination from the ATO on 1 July 2015, identifying a $50,000 excess non-concessional contribution and associated earnings.
Calculation of Associated Earnings
The associated earnings will be calculated by the ATO, with reference to the General Interest Rate (GIC) charge. This means the associated earnings will be:
$50,000 x (1+0.02654794%)^92 x (1+0.02638356%)^92 x (1+0.02671233%)^90 x (1+0.02564383%) ^91 - $50,000 = $55,041.33 - $50,000 = $5,041.33.
Total release amount stated in the determination for Jayden is $5,014.33 x 85% + $50,000 = $54,262.18.
If Jayden elects to release the excess, his SMSF would pay out $54,262.18. The Commissioner will amend James' 2013/14 tax assessment to include $5041.33 as extra assessable income, which will be taxed at his marginal tax rate (@ 37% plus 2% Medicare levy) and he will be entitled to a non-refundable tax offset of $779.15.
If he decided not to elect to release the excess non-concessional contributions, the $50,000 excess would be taxed at 49% in the SMSF. Then the SMSF needs to release $24,500 to pay ATO for the excess non-concessional contribution tax.
Process Lump Sum Payment Event
Navigate to Fund Level > Transactions > Member Payments > Rollover /lump Sum Out
- Click on Basic Details tab
- Select the relevant member from the Member drop-down box
- Enter the Payment Date
- Select the Condition of Release "Refund for Excess Non-Concessional Contributions"
- Click on "User Selected" for ETP Calculation Basis - allows users to select appropriate preservation and tax components
The preservation components for the relevant member will be populated in the relevant field.
- Click on the Payment Details tab
- Enter the amount of the payment in the Gross Payment Amount field (e.g. $54,262.18)
- Add the same amount in the Preservation Components
- Add the same amount in the ETP Components Fields
Note: $50,000 needs to come out of the Tax-Free component and $4,262.18 from the Taxable Taxed component as earnings.
- Click on Submit
- Match this transaction with the actual cash paid to the member