Superannuation fund trustees who receive compensation from financial institutions and insurance providers must consider how receipt of these payments may impact a member’s contribution caps.
A superannuation fund may have a right to seek compensation if it entered into a legal contract or agreement with a financial services provider or insurance provider, paid the fees or premiums from the fund’s assets, allocated the cost to the members, and:
The compensation may include an amount reflecting a refund or reimbursement of adviser fees and/or an amount to compensate for lost
earnings. It may also include an interest component.
If a superannuation fund receives such compensation, the fund’s trustee must be aware of possible superannuation, income tax and GST
consequences for the fund.
The implications for the fund and members
The ATO has released a superannuation contribution caps factsheet that explains how the receipt of compensation payments to a
superannuation fund may impact contribution caps.
Whether compensation is a contribution will depend on the circumstances in which the compensation is received. The circumstances are
summarised in the table below:
Knock-on effects for members
The following issues should also be considered by superannuation fund members who have received compensation payments:
CIRCUMSTANCE | TREATMENT OF COMPENSATION |
Where the superannuation fund engaged the financial service provider and has a right to compensation. |
Not considered to be a contribution and won’t affect contribution caps. |
Where the member personally engaged the financial services provider and has a right to compensation. |
If paid directly by the financial service provider to the superannuation fund (other than at the member’s direction) this is considered a concessional contribution in the financial year it is received by the fund. However, if the member directed the financial service provider to pay the compensation to their fund, or it was paid to the member and the member subsequently contributed it to superannuation, it will be considered a non-concessional contribution in the financial year it is received by the fund. |
Where there is no right to seek compensation. | Considered a concessional contribution in the financial year it is received by the fund. |
Further information can be found on the ATO website