In the last 12 months, the financial services industry is seeing some light after the global financial crisis. This has meant we can refocus on our clients’ financial strategies and utilise the time to try to help clients regain some of their investment losses. This article will focus on one of those ways by increasing contributions into superannuation.
The Australian Tax Office (ATO) released the final Taxation Ruling TR 2010/1 on 25 February 2010. It was previously released in draft form as TR 2009/D3. The final ruling looks at how contributions are made to superannuation and the Taxation Commissioner’s view on the ordinary meaning of the word ‘contribution’.
A copy of TR 2010/1 can be found on the ATO’s website by clicking on the following link - TR 2010/1
A superannuation contribution can be made in cash or by transferring an asset to the superannuation provider via an in-specie contribution. An in-specie contribution will generally need to be an available investment within a retail superannuation fund. Within a Self Managed Super Fund (SMSF) the trustees should have more flexibility regarding the assets subject to the fund’s trust deed, investment strategy and related party acquisition rules such as a listed security (ie direct Australian shares), business real property (ie commercial premises) or a widely held unit trust (ie a managed fund).
A superannuation fund is also allowed to accept cheques as a form of contribution but no contribution will be made if the cheque is not honoured. This can be an issue for small businesses with minimal or poor cash flow management regarding the payment of their employees’ SG liabilities as they may be subject to the late payment SG penalty.
Note that a transfer of a person’s benefits from an overseas superannuation fund to an Australian superannuation fund is also classified as a contribution and is therefore, subject to the contribution rules and non-concessional contribution cap for the member. The IOOF administration team can help you access your clients’ overseas pension schemes especially if they are held in the United Kingdom as the IOOF Life Track, IPS & Pursuit superannuation products are registered ‘Qualifying Recognised Overseas Pension Scheme’ (QROPS).
A contribution made with cash or via an electronic transfer of funds is treated as being made when it is received by the Trustee of the fund.
A contribution by a cheque that is post-dated will be treated as a contribution on the date the funds can be demanded (eg date of the cheque). This is an important contribution planning strategy when clients are making large non-concessional contributions over two successive financial years and will coincide with 30 June (eg client age 67 contributes $150,000 in June 2010 and a further $150,000 in July 2010). This will avoid excessive contribution tax issues should an administration error be made and both cheques are posted to the super fund prior to 30 June 2010.
A contribution of property will be received by a super fund when either the legal or beneficial ownership of the property passes to the super fund. For a direct property contribution eg a business real property within an SMSF, the ownership/contribution will pass to the SMSF when beneficial ownership is provided by obtaining the requisite transfer forms and there are no legal impediments preventing the superannuation fund from affecting registration of legal ownership.
Example 1 - Real property transfer
Bob owns land on which retail premises have been constructed. Those premises include the site from which Bob runs his pharmacy business. Bob decides to contribute the land (being business real property) to his SMSF.
The fund has a corporate trustee, CarPharm Pty Ltd, of which Bob and his wife Janet are directors. The directors of CarPharm Pty Ltd resolve to accept the contribution of the land on
1 June 2009. After obtaining advice from their solicitor, Bob, as owner of the land, and Bob and Janet, as directors of the corporate trustee of the fund, complete the necessary land transfer forms on 29 June 2009. Janet lodges them with the registrar of land titles on 2 July 2009. CarPharm Pty Ltd is registered as owner of the land on 9 July 2009.
In these circumstances, Bob's contribution will be made on 29 June 20091.
A contribution of shares or managed funds will usually occur when the super fund acquires beneficial ownership which will involve a completed off-market transfer.
Example 2 – Off market share transfer
On 26 June 2009, Bob signs an off-market share transfer form to in-specie transfer his BHP shares to his SMSF.
Bob leaves certain parts of the form blank for completion by his broker, as the shareholdings are broker sponsored. Bob posts the transfer form to his broker on the same day.
Bob’s broker adds the omitted information on 2 July 2009 and sends it to the company's registrar. Bob’s SMSF is registered as a shareholder on 6 July 2009.
Bob’s contribution will be made on 2 July 2009.
The taxation ruling and accompanying explanation has confirmed whether many long standing practices are captured as a contribution. Given the reduction in the superannuation contribution caps, understanding how and when a contribution can be made is vital for your client’s contribution cap planning and even more important for your pre-retirement clients whose strategy is to utilise and maximise the annual superannuation contribution caps.
The IOOF Pursuit Select Superannuation product has the ability to accept an in-specie contribution if the fund and/or share is currently available within the product investment menu. Note that Pursuit Select now has a direct share offering which allows you to invest in any companies within the ASX300 companies.
For more information about IOOF products and services please contact your friendly IOOF Business Development Manager.
1Final Taxation Ruling TR 2010/1 Paragraph 83 & 84.
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Newsflash: Age pension increase from 20 March 2010
Technical Strategy: Negative investment returns can cause trouble or create opportunities for super strategies
Technical Strategy: Trustee matters – Accepting superannuation contributions
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