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Self Managed Super Fund (SMSF) Article
With super contributions, timing is everything
By Tony Negline.
This article may be out of date.
31st March 2010
Cash, cheque and electronic transfers are just some of the ways superannuation contributions can be made. In fact according to a document recently released by the ATO there are at least eight different ways super contributions can be made.
An overriding consideration is the motivation of the person making the contribution. A super contribution will not have been made unless a person's actions have increased the capital value of a super fund and their purpose has been to benefit some or all of a super fund's members.
A person's purpose is based on an objective assessment. In very general terms this means that a person's purpose can be gleaned from what they've actually done and the natural and probable consequences of those actions.
It is certainly true that cash, cheque and electronic transfers are the most common way super contributions are made. But even here there are important timing points which need to be noted.
A super contribution made with cash will be received by a fund when the trustee physically takes possession of the cash.
A contribution using electronic transfer of funds is made when the money is deposited into the super fund's bank account. A lot of people seem to be under the misapprehension that these contributions will be made when the contributor has asked for the money to be transferred to the super fund's account even if that money has been withdrawn from the contributor's account. The ATO argue that the party asking for the ETF transaction has insufficient control over if and when these transactions will be completed and the only time one can be sure it will take place is the completion date.
In most cases contributions made by cheque will be received by a super fund when a trustee takes physical possession of it. Personal cheques (for example for members contributions) should be promptly presented and honoured. Contributions made with cheques that are post dated are made when they can be presented and honoured. Obviously a contribution will not be made if a cheque is dishonoured.
What about in-specie contributions – that is, contributions made by transferring an existing asset? In most cases a contribution will be made when legal ownership of the asset is formally transferred. For example real estate will be a contribution when the super fund is registered as the owner.
Fortunately the ATO will accept that an in-specie contribution is made when a super fund acquired beneficial ownership of an asset. Beneficial ownership may occur sooner than legal ownership. Any super fund trustee wanting to rely on beneficial ownership needs to retain sufficient evidence of the transaction.
For example, beneficial ownership of real property will occur when a super fund trustee receives a properly executed transfer in a registrable form together with title deeds or other documents necessary to register the super fund as the asset's owner. For the off market transfer of anything listed on the ASX, beneficial ownership will change when the super fund trustee obtains a properly executed off-market transfer form.
A super contribution will also be made when someone creates rights in a super fund. This will occur when a person creates a contractual right or other legal or equitable right in a super fund which didn't previously exist.
This might occur when a super fund holds a right to receive income or capital from a discretionary trust.
A super contribution might also be made when the value of an asset owned by a super fund is increased. This would typically occur when a person improves an asset. The contribution would be deemed to occur when ownership of the asset improvement to the super fund. For land and buildings this would be as soon as the improvement becomes a fixture to the property.
A super contribution might also be made when a liability that a super fund owes to a third party is paid by someone else. For example, if the member paid for a super fund's accounting and auditing services out of their own bank account. However the ATO believe that a super contribution will not be made where a super fund member with sufficient knowledge and experience personally prepares the fund's accounts and regulatory returns for no remuneration. The Tax Office argues that a contribution has not been made because a liability of the fund hasn't been created.
A super contribution could be made when a debt owed by a super fund is forgiven. The contribution will occur when a deed of release is executed or the law prohibits the creditor from enforcing the liability.
Any guarantor that pays a liability of a super fund and cannot enforce or doesn't enforce their rights of recovery will also be classed as a super contribution. If the guarantor has no right of indemnity then the contribution is made when the guarantor satisfies the super fund's liability.
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