“Contributions may only be refunded in very limited circumstances prescribed by legislation. Getting it wrong can potentially lead to the fund become non-complying,” Mr Dunn warned in an online article.

“A trustee can only return a contribution that it receives on behalf of a member where it was unable to have been accepted under the SIS Act or SISR, or if the return is authorised by the principles of restitution for mistake.”

Mr Dunn explained there are some circumstances where contributions cannot be accepted by a fund trustee.

Section 7.04 of the SISR, he said, sets out the restrictions for who can make a contribution.

Individuals over 65 years of age must have satisfied a work test before the contribution is made for the contribution is accepted, he explained. 

“A contribution must also be returned where a valid TFN has not been provided,” he said.

Section 7.04(4) requires that any contribution that cannot be accepted to be returned within 30 days of the trustee becoming aware that it was received in a manner inconsistent with sub-regulation (1) or (2) of SISR 7.04, he noted.

“For an SMSF, the ATO considers that the trustees are aware that a contribution is in breach of the law when the individual becomes aware of the contribution itself, which means from the date of the contribution being made,” he explained.

“Where this [30-day] period expires, the member will not be able to take advantage of the defence provided by sub-regulation 7.04(5) of the SISR and will be in breach of the rules.”

Contributions that are returned in accordance with the law of restitution don’t count towards the member’s contributions cap, he said, but the fund must amend its reporting to account for returned contributions.

“In circumstances where the law of restitution does not apply, a fund must continue to report the contributions that were received, even if they were returned,” he clarified.

“The ATO makes [it] very clear that they will scrutinise any decisions made to return contributions ‘paid in error’, albeit recognising there are many circumstances where a decision to amend will be entirely correct. A failure to amend would be a failure to report correctly.”

ATOID 2010/104, he said, clarifies that where a contribution is made and then subsequently repaid, this will require the trustee to report the full amount of the contribution as part of the member contribution reporting within the SMSF annual return.

“Planning is required around contributions to ensure that not only are the contribution limits maximised to benefit members, but to also ensure that contributions stay within their limits,” he said.