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Find out what your peers are asking – based on real-life questions submitted to TechConnect.
By Stuart Sheary, Senior Technical Services Manager
Q: My new client’s super fund will receive a refund of $5,000 in adviser fees charged. The refund relates to fees where no service was provided. Will this refund count towards their contribution cap and if so, what contribution cap will it fall under?
A: A trustee of a super fund may be entitled to claim back an adviser service fee from the financial services provider if the member did not receive the agreed service.
A super fund will ordinarily have a right to seek compensation when it was the same trustee that paid the expense. In this case if the expense (including any interest that may have been calculated on the paid fee) is refunded and allocated back to the member’s account it will not count towards any contribution caps. See ATO ‘super contribution caps’.
If the adviser fee was deductible to the fund when they were paid then the amount repaid will also be assessable to the fund. This effectively ‘zeroes out’ any tax benefit from the initial fee.
If the fees were not deductible to the super fund when they were paid then the amount will reduce the cost base of any underlying investment. This may result in a larger assessable capital gain for the fund.
It is best practice to confirm with the fund how the original fee was treated.
Where the client (themselves and not the fund) has a right to seek compensation because they personally engaged the financial service provider and the compensation is paid directly by the financial services provider to the client’s super fund, the amount will be treated as a contribution to the fund. If the amount paid directly into the fund was not at the direction of the client then the contribution will be treated as a concessional contribution in the year it is received by the fund.
Alternatively, if the amount was paid into the client’s super fund at the client’s direction, then it will be treated as a non-concessional contribution (NCC). This contribution will count towards the cap in the year it is received. If the client receives the compensation personally and contributes the amount to super, then again the contribution will be treated as an NCC. However, if the client submits a valid notice of intent to claim a deduction, that portion of the contribution will be treated as a concessional contribution.
If the client claimed a tax deduction in relation to advice fees the compensation will be added to assessable their income. If the client did not claim a deduction for the advice fees the refund will not be added to assessable income. If the original advice fees were included in the cost base on investments, then the cost base must be reduced accordingly. Any interest component of the compensation is assessable. See ATO compensation paid by financial institutions.
If you have any questions, or would like more information, please contact the IOOF TechConnect team on 1300 650 414.
The information in this section of the website is intended for financial advisers only and is not to be distributed to clients. It has been prepared on behalf of Australian Executor Trustees Limited ABN 84 007 869 794 AFSL 240023, IOOF Investment Management Limited ABN 53 006 695 021 AFSL 230524, IOOF Investment Services Ltd ABN 80 007 350 405, AFSL 230703 and IOOF Ltd ABN 21 087 649 625 AFSL 230522 based on information that is believed to be accurate and reliable at the time of publication.