Did your super fund receive a compensation payment?

HomeLearning CentreInsights

Did your super fund receive a compensation payment?


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

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, etc.

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:

  • 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.

Questions?

Get in touch with our team for expert advisory on your superannuation and other financial planning matters.

TALK TO US TALK TO US


9 Sep

Investing in Property

If you're looking into investing into property, regardless if it's residential or commercial, there's plenty to weigh up.


READ MORE READ MORE
8 Sep

Did your super fund receive a compensation payment?

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


READ MORE READ MORE
8 Sep

Divorce, Superannuation and the Gender Divide

New legislation will help prevent superannuation assets from being hidden during divorce proceedings. From 1 April 2022, the Australian Taxation Office (ATO) will be able to release details of an individual’s superannuation information to a family law court.


READ MORE READ MORE