Did your super fund receive a compensation payment?

Is a financial services compensation payment to your superannuation fund a contribution?

Of late, financial service provides have made several compensation payments to customers. The customers paid for insurance premiums that were inappropriately charged or overcharged, or for services they never received.

New guidance from the ATO helps decipher whether we will treat these compensation payments as contributions to your fund. The problem for some people is that if they treat the compensation payments as a contribution to their superannuation fund, they may exceed their contribution cap or attract Division 293 tax. Division 293 is a 15% tax on superannuation contributions for those with combined income and superannuation contributions of $250,000 or more.

In general, the treatment of the compensation depends on who engaged the financial services provider.

• 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. The individual recieves the compensation as a concessional contribution in a financial year.
• Individual engaged the financial services provider and compensation paid to the fund at member’s discretion. The individual receives the compensation as a non-concessional contribution in a financial year.

If neither the fund member nor the financial services provider has a right to seek compensation, the fund counts the amount as a concessional contribution in the financial year it receives it.

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 to speak to an expert about your superannuation? You can book a Superannuation Consultation with one of our qualified team members.

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This is general advice only and has not been prepared with your situation and needs in mind. For individual and personalised advice, we highly recommend that you seek out proper professional advice from your accountant.