My posts are generally much shorter than this, but the details of this case are too important to truncate.

In October 2025, the ATO issued release authorities to a two-member fund we administer, requiring the immediate release of $316,045.45 for one member and $279,997.70 for the other — almost $600,000, payable to the ATO as soon as possible, for excess non-concessional contributions. This was a surprise to both us and the members. They were adamant that no excess contributions had ever been made, and on the fund’s records, they were right. Every contribution had been made within the caps. The problem originated elsewhere and had been gestating for more than two years.

What was meant to happen

In 2022-23, both members made personal deductible contributions which included their unused cap carried forward from earlier years — $126,886.56 for one member and $95,726.00 for the other. Both were eligible for the catch-up: their total super balances were under $500,000. Each also made a non-concessional contribution of $110,000, the annual cap at the time.

The fund’s side of the paperwork was done properly. The contributions were reflected in the financials lodged with the ATO, and the trustees issued the acknowledgements confirming the amounts — precisely so the members’ personal accountant could claim the matching deductions in their returns.

One overlooked notice

The accountant subsequently acknowledged receiving the notices of intent — and overlooking them when the personal returns were lodged. No deduction was claimed so the ATO treated the catch-up portions as non-concessional contributions.

That reclassification did not breach the non-concessional cap in 2022-23. It did, however, trigger the three-year bring-forward, making 2022-23 the first year of a $330,000 three-year cap. In 2023-24, each member contributed $329,000 — believing, entirely reasonably, that this was the first year of their bring-forward, not the second. Because their personal contribution was mishandled, as far as the ATO was concerned, it was the second. They were now in excess.

The letters nobody read

At that point the ATO wrote to each member personally: an excess contributions determination, offering 60 days to elect to release the excess or leave it in the fund. Those letters were received by the accountant’s office — and filed, without the members being told or the issue addressed. Because an excess non-concessional contribution left in the fund is taxed at the top marginal rate of 45 per cent plus Medicare levy, the ATO presumes a silent member would rather release it so when the 60 days passed with no response, the release pathway was selected by default and the release authorities went to the fund. That was the first moment anyone outside the accountant’s filing cabinet knew a problem existed.

The deemed earnings multiplier

Now look at the numbers. The excess contributions were $208,386.56 and $177,226.00 but the ATO demanded $316,045.45 and $279,997.70:

The gap is “associated earnings” — the ATO’s deemed earnings on the excess, calculated at the average of the general interest charge rates for the year (the 90-day bank bill rate plus seven percentage points, lately above 11 per cent), compounding daily. Two features of that calculation are important. First, the clock starts on 1 July of the financial year in which the excess arose regardless of when in the year the contributions were actually made. Second, it keeps running until the ATO issues its determination, which it couldn’t do until the members’ personal returns were lodged. The ATO has no discretion to vary the rate or the period — and here this added an uplift of more than 50 per cent to the excess itself.

The endgame

This is a personal tax matter, not a fund matter. As administrator we could not contact the ATO on the members’ behalf, and the ATO would not deal with us: only the members and their personal accountant could negotiate. The ATO set 15 June 2026 as the date for action before the excess would be taxed in the fund. To avoid this, whilst the member’s personal accountant was trying to deal with the ATO, the trustees sold up sufficient assets and made the payment within the timeframe.  The ATO refunded the amounts to the members personally. The accountant has now amended their previous personal returns and is compensating the members for their costs. Their resultant non-concessional contribution status is still being untangled.

The lessons

1. Personal deductible contributions are a two-sided transaction. The fund’s treatment and the member’s personal return must match: notice of intent, fund acknowledgement, deduction claimed. The fund did everything right here — one overlooked notice at the personal end still reclassified the lot.
2. Deemed earnings punish delay. Associated earnings run from 1 July of the year of the excess until the ATO’s determination, compounding daily at a punitive rate. Prompt lodgement of personal returns, and prompt responses to ATO correspondence, are the only things that stop the meter.
3. ATO correspondence must reach the client. The determination and its 60-day window passed entirely unnoticed because the letters were filed unread. Whoever receives ATO mail for a client must escalate it — and members should check myGov themselves.
4. Never reject a release authority on instinct. If the request is valid and refused, the excess is taxed at 45 per cent plus Medicare. Verify with the ATO through the member’s personal representative before doing anything.
5. Check bring-forward status before large contributions. A bring-forward can be triggered without anyone intending it. Confirm the position on myGov before contributing — especially in the years after a catch-up contribution.

When a determination like this arrives, there are only a few possible causes: the member was not eligible for the catch-up (total super balance of $500,000 or more), the deduction was never claimed, or the ATO has made a mistake — and we have seen all three. If your clients have made personal contributions and intended to claim a deduction, it is worth confirming now that both sides of the paperwork actually happened. Penalty rates compound daily, and “we meant it to be concessional” is not a defense.

On another note, if you are interested in transferring your SMSF administration to ourselves we have a transferring fee arrangement you might find of interest. I’m always happy to have a chat about what we can do for you. Feel free to call.