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Ruling

Subject: Deductibility of employer superannuation contributions

Question

Can a company claim a tax deduction in the 2008-09 income year, for superannuation contributions made to a superannuation fund under section 290-60 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer

No.

This ruling applies for the following period:

For the year ended 30 June 2009

The scheme commences on:

1 July 2008

In a facsimile sent in the 2008-09 income year, the director of a company (the Company) instructed the company's banker (the Bank), to transfer an amount to the Fund. It was intended for the transfer to be treated as employer contributions made for the 2008-09 income year.

The transfer was made to the sharebroker trust account before being incorrectly transferred to the director's personal account.

The bank error was not noticed until the financials were being prepared for the 2008-09 income year. The funds were not used by the director in the meantime with the account to which the funds were incorrectly transferred being in credit above the transferred amount for the entire period.

In a letter dated in the last quarter of the 2009-10 income year, the Bank has confirmed the transfer request was to be made to the Fund for the 2008-09 financial year however, due to a bank error, the funds were inadvertently transferred to an incorrect account.

The eventual transfer to the Fund occurred in the last quarter of the 2009-10 income year.

The trustee of the Fund is Company B.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 290-60

Income Tax Assessment Act 1997 Subsection 290-60(3)

Income Tax Assessment Act 1997 Subsection 290-60(4)

Income Tax Assessment Act 1997 Section 290-70

Income Tax Assessment Act 1997 Section 290-75

Income Tax Assessment Act 1997 Section 290-80

Reasons for decision

Summary

The Company is not entitled to claim a deduction for employer superannuation contributions for the 2008-09 income year as the contributions were not made to the Fund until the following year of income.

Detailed reasoning

Deduction for employer contributions to a superannuation fund

The operative provisions dealing with the deductibility of contributions to a superannuation fund for the benefit of an employee are contained in subdivision 290-B of Division 290 of the Income Tax Assessment Act 1997 (ITAA 1997).

An entity is entitled to claim a tax deduction in respect of all superannuation contributions under section 290-60 of the ITAA 1997 if:

· the contribution is made to a superannuation fund or a retirement savings account (RSA);

· the contribution is made for the purpose of providing superannuation benefits for another person who is an employee of the entity when the contribution is made; and

· the conditions in sections 290-70, 290-75 and 290-80 of the ITAA 1997 are also satisfied.

Subsection 290-60(3) of the ITAA 1997 states that the deduction can only be claimed in respect of the income year in which the employer made the superannuation contribution.

This means that provided the entity made a superannuation contribution to a complying superannuation fund they will be able to claim a deduction for the financial year in which they made the contribution under section 290-60 of the ITAA 1997.

Further, a deduction cannot be claimed in respect of a contribution if it is an amount paid by the entity, as mentioned in regulations under the Family Law Act 1975, to a regulated superannuation fund (within the meaning of that Act) or to an RSA, to be held for the benefit of a non-member spouse of the entity in satisfaction of his or her entitlement in respect of the superannuation interest concerned (subsection 290-60(4) of the ITAA 1997).

When is a contribution made?

Taxation Ruling TR 2010/1 discusses at length the Commissioner of Taxation's view on when a contribution is made.

Paragraph 4 of TR 2010/1 states:

In the superannuation context, 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 of the members in general.

Paragraph 12 of TR 2010/1 states:

A superannuation fund's capital is most commonly increased by transferring funds to the superannuation provider and, as a general rule, the contribution will be made when the funds are received by the superannuation provider.

At paragraphs 183 to 186 of TR 2010/1 the following comments are made regarding electronic funds transfers:

183. A contribution of funds as cash or an electronic funds transfer, is made when the amount is received by the superannuation provider or credited to the relevant account.

184. It has been suggested that a contribution made by electronic funds transfer may occur as soon as the contributor has done everything necessary to effect a payment. The Commissioner does not accept that is sufficient to increase the capital of the fund.

185. Electronic payment systems operate through contractual arrangements between the:

· payer and payer's financial institution;

· payer's financial institution and payee's financial institution; and

· payee's financial institution and payee.

186. When a financial institution agrees to accept a payment instruction it notifies the receiving institution of the details of the payment. In Australia there are several different clearing systems for the transferring of information and netting of amounts to be transferred between institutions. The clearing rules of these systems bind the financial institutions but not the customers. Most small payments between institutions are not processed in real time but are subject to deferred net settlement which occurs overnight. As such, it is not until an amount is credited to a bank account of the superannuation provider that a contribution will be taken to be made.

It is clear from the foregoing that, in the case of cash contributions and contributions by way of electronic funds transfers, a contribution will only be considered to have been made when an amount has been credited to a bank account of the superannuation provider.

In the present case, a deductible superannuation contribution was intended to be made from the Company's bank account to the Fund for the 2008-09 income year. However, due to an error by the bank, the contribution was made from the Company's bank account to the sharebroker trust account before being transferred to a personal account for the director.

The bank error was not noticed until the 2009-10 income year when the accounts were being prepared for the Fund. The eventual transfer to the Fund occurred in the last quarter of the 2009-10 income year.

In light of the above, it is clear that the contribution was not made until the 2009-10 income year. Whilst it is noted that the contribution was delayed due to the error made by the bank, this does not change the fact that the amount of the contribution was not credited to the bank account of the Fund until the last quarter of the 2009-10 income year.

Year of income in which the contribution may be claimed

The legislation itself is quite specific. It requires that a contribution be made in the relevant year of income to a superannuation fund and, subject to the necessary requirements being met, a deduction will be allowed for that year of income. It does not contain a discretion that can be exercised by the Commissioner to allow a deduction for the relevant year of income where the contributions are actually made in a later year of income.

As the contribution was not made to the Fund until the 2009-10 income year, the Company is not entitled to claim a deduction for the superannuation contribution in the 2008-09 income year.

However, the Company is entitled to claim a deduction for the superannuation contribution in the 2009-10 income year.

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