SYDNEY 20 June 2013 – Chaos and confusion reign about contributions to SMSFs, says Caroline Harley, an Associate at Townsends Business & Corporate Lawyers.
‘While the Australian Tax Office’s Tax ruling 2010/1 gives guidance on contributions which are made to superannuation funds, the ruling is not law,’ says Harley.
‘It’s the opinion of the Commissioner of Taxation as to how the relevant provisions apply or would apply. It’s clear that if you rely on the ruling that the law must be applied to you in the way set out in the ruling (unless the ATO finds that it is incorrect and disadvantages you).
‘The ruling states that “you will be protected… if it turns out that it [the ruling] does not correctly state how the relevant provision applies to you”,’ says Harley.
What is a contribution?
The ruling says a contribution is anything of value ‘that increases the capital of a superannuation fund provided by a person whose purpose is to benefit one or more particular members of the fund or all the members in general’, says Harley.
It clarifies that generally a person is said to ‘intend the natural and probable consequences of their acts and likewise their purpose may be inferred from their acts’.
The ruling confirms that in specie contributions can also be made (in specie contributions are non-cash contributions; for example real property and listed securities).
‘Generally, there is a prohibition preventing the acquisition of an asset from a related party,’ Harley says , ‘but a member can make an in specie contribution of an asset they already own if it meets the requirements of section 66 of the SIS Act. The contributions are permitted if they meet the requirements under s66 of the SIS Act of business real property, listed securities and certain in-house assets’.
When are contributions made?
The ruling says that, generally, contributions are made when received by the superannuation provider or trustee of the fund, but the exact timing can vary depending on the nature of the contribution being made.
All activities of the fund must be kept in mind because sometimes unintentional contributions can be made which affect compliance and contribution caps. Some examples could be:
(a) a related-party loan as part of a limited recourse borrowing arrangement where no interest is being charged on the loan; deemed contributions could be regarded as having been made due to the shift in value
(b) non-market rent being charged on property owned by the Fund and leased to a related party tenant
(c) services performed for the fund where below-market rate payment is made (there are, however, examples of exceptions outlined in the ruling which include an accountant who prepares a return for their own single-member fund)
(d) where a debt owed by the fund is forgiven, or
(e) paying an amount to a third party for the benefit of the Fund.
Cash, electronic funds transfer and BPAY
When making cash contributions by electronic funds transfer, BPAY or other similar methods the contribution may be delayed because it is processed through a clearing house. Australian banks and financial institutions use a number of clearing houses.
The date the fund receives the payment is generally the date the contribution is made; it is not the date upon which the funds are transferred out of the contributing member’s account.
In specie contributions by a member
In specie contributions can be made when the fund obtains ownership of an asset from the contributing member. The asset may be transferred to the fund with no consideration or less than the market value of the asset is paid. It is important to obtain a valuation of the asset at the time of the transaction to ascertain current market value for the property.
The ATO may accept that a superannuation fund can obtain ownership when beneficial ownership is acquired if proper documentary evidence is kept. Beneficial ownership may be acquired earlier than legal ownership of the asset.
In specie contribution of real property
Beneficial ownership is acquired by the fund when the fund trustee ‘obtains possession of a properly executed transfer that is in registrable form together with any title deeds and other documents necessary to procure registration of the superannuation provider as the legal owner of the land’. If the transaction is a sale this is effectively on the date of settlement, if there is no sale and no consideration paid it’s when the documents are held by the fund trustee.
Note the words ‘properly executed transfer that is in registrable format’. Be cautious as to typographical errors or requirements of the titles office which may render the transfer not to be in a registrable form. Check with your conveyancer if you are unsure, because if errors must be corrected, the beneficial ownership does not pass to the fund until the transfer is in registrable form which will delay the date of contribution.
In specie contribution of listed securities
Beneficial ownership is acquired by the fund ‘when the trustee obtains a properly executed off-market share transfer in registrable form’.
With contribution of either real property or listed securities if the proper documents are not kept as evidence you cannot rely on the date of beneficial ownership and the date registration of the transfer takes place will be the date of contribution.
Caroline Harley
Associate
Townsends Business & Corporate Lawyers
Tel: 02 8296 6222
caroline@townsendslaw.com.au