With the shadow of excess contributions tax looming over tax payers, it has never been more important to determine correct amounts and timing of contributions. The issue particularly targets contributions which exceed the relevant concessional and non-concessional limits. The ATO has reported that there are over 24,000 cases of excess contributions for the 2007/08 year alone. Both members and advisers need to take care when contributing money and in-specie contributions to superannuation to ensure that they:
- make the contribution in the year they intend to – this is particularly important leading up to 30 June 2009 to ensure that contributions that are intended to be made this year are made in time; and
- take into account the correct value of any in-specie contributions of property.
The ATO has released Draft Taxation Ruling TR 2009/D3 setting out its views on:
- what is a contribution to a superannuation fund?
- when is that contribution made? and
- what is the value of that contribution?
The due date for comments on the ruling is 17 July 2009.
What is a contribution?
An amount received by a superannuation fund will be a superannuation contribution if it increases the capital of a superannuation fund. However, an amount received by the superannuation fund trustee will not be a superannuation contribution if it is derived or received as:
- income;
- profit or gain from the investment; or
- realisation of an investment, of the existing capital of the fund or account.
The Ruling states that 'whether an amount is a superannuation contribution is determined having regard to the character of the amount in the hands of [the trustee]'. The key element is therefore whether the fund trustee treats the amount as a contribution or not, not the intention of the contributor. Although not explicitly stated, an amount will not be a contribution where the superannuation trustee is not allowed, as a matter of SIS law Superannuation Industry (Supervision) Act 1993) or the trust deed, to accept the contribution (e.g. amounts in excess of the fund capped contribution amount).
Examples of contributions
A superannuation contribution can be made in:
- money; money equivalent;
- by transferring an asset to the superannuation fund trustee (an in specie contribution);
- by increasing the value of an existing asset of the fund whether that increase occurs by making an improvement to the asset;
- by shifting the value of interests in the asset held by both a person and the superannuation fund trustee to the interest held by the superannuation fund trustee;
- meeting or reducing an existing liability of a fund; or
- paying expenses on behalf of the fund.
The draft ruling also makes some interesting comments concerning guarantees that should be considered by anyone who has entered into, or is entering into, these sorts of arrangements.
When is a contribution made?
Essentially a contribution will be made:
- in relation to money or money equivalent when the money is received; and
- in relation to in-specie contributions of shares where legal or beneficial ownership passes to the superannuation fund trustee.
A contributor who seeks to argue that a contribution of property is made when beneficial, not legal, ownership of the property passes must retain sufficient evidence of the relevant transactions and events to accurately identify when the change of beneficial ownership occurs. For example, where listed shares are being transferred to a superannuation fund trustee, the Commissioner will accept that beneficial ownership may pass prior to the transfer of the legal ownership (ie at the time when the superannuation fund trustee obtains a properly completed off market share transfer form from the contributor). This is important in determining the current market value at the time of the contribution.
The evidence supporting a transfer of the beneficial interest prior to the transfer of the legal ownership should show when everything that is required to be done to effect registration of the change of ownership occurs. Such evidence would include:
- relevant minutes of any trustee meeting held to consider the acceptance of the in specie contribution;
- the relevant transfer forms; and
- any other record of when the relevant transfer took place.
What is the amount of the contribution?
The amount of an in specie contribution is the market value of the asset at the time the contribution is received by the superannuation fund trustee.
In relation to listed shares, this means the amount of the contribution is determined not by the market value of the listed share at the time of the agreement to transfer the shares is entered into but at the time the off-market transfer form is presented. This may have significant timing and valuation issues for members contributing to superannuation.