Super Contributions made before 30th June to your SMSF – credited to your fund after 1st July - which year do they belong ? read ATO's opinion

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Super Contributions made before 30th June to your SMSF - credited to your fund after 1st July - which year do they belong ?

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August 2008

Issue 17 of 2008

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Super Contributions made before 30th June to your SMSF - credited to your fund after 1st July - Super Fund's view Vs ATO - the fight is on - In any case, you are the loser.

Consider this, you are not working and on 5th July 2008 you turn 65 years old. Your adviser informs you that you can contribute $150,000 before 30th June 2008 and before 5th July 2008 you can contribute another $450,000 non-concessional contribution in your super fund and commence a tax free pension for life.

Scenario 1 - Contributions to a public offer fund - like AMP

You walk up to AMP's office in the city on 27th June 2008 (Friday) and hand them a cheque of $150,000 and they issue a receipt to you. Then on 4th July 2008 (Friday - you are still 64 years old) you take another cheque $450,000 to AMP.

After a week, you check your bank account, the first cheque was cashed on Tuesday 2nd July 2008 (Wednesday - because AMP was very busy to bank your cheque) and the second cheque is withdrawn on 9th July 2008 - please note you are now over 65 years old.

You would like to believe that everything is fine, since you have a receipt from AMP but you are wrong,

Since $600,000 contribution is credited in your super account in one financial year, the maximum you can contribute is 450,000 if you use the bring forward rule, hence by these contributions, your super fund (or you) may become liable to pay excess contribution tax.

Further, you made contributions after you turned 65, the rule is that you can contribute

non-concessional a maximum of $150,000 provided you are working and no bring forward of three years worth of contributions are allowed. Since you are not working, the fund may refund you the extra contributions which means that you can commence a tax free pension but of a lower amount. Click here to read ATO's opinion or copy and paste the following URL in your web browser. http://www.ato.gov.au/taxprofessionals/content.asp?doc=/content/00147914.htm&page=15&H15

Scenario 2 - Contributions to your Self Managed Super Fund

Same situation as above - but you withdraw cash on 27th June 2008 from your personal bank account and the trustees (your trustee company) issues a receipt to you on the same date. You go to the super fund's bank on 2nd July 2008 to deposit the cash.

Then on 4th July 2008 you prepare share transfer forms of some of your shares to transfer them to your super fund, you use the value of 3rd July 2008 and sign the form on 4th July whilst you are still 64 years old. You mail the share transfer forms on the 4th July to the share registry but the transfer is affected by them on 9th July 2008.

You would like to believe that everything is fine, but you are wrong again.

A contribution is made to a fund when it is received by the fund.
As the contribution is received after 30 June 2008, it cannot form part of the member's super interest before 1 July 2008 and will not form part of the fund.

Where the transfer of shares occurs on or after 1 July 2008 due to incorrect completion of forms, or delay in receiving the forms, the value of the member's super interest will not include the value of the transfer. As the transfer occurred after 5th July 2008, it cannot form part of the member's super interest before 5th July 2008.

The relevant section is 285-5 of the ITAA 1997 which specifically allows for a contribution to be made by the transfer of property. The amount of the contribution is the market value of the property at the time the transfer takes place. The contribution will be made when the property is transferred to the fund.

The ATO is coming with a ruling on this issue, however in the mean time click here to read ATO opinion.

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