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Edited version of private ruling
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Ruling
Subject: Concessional contributions cap - timing of superannuation contribution
Question
Will a cheque made to a fund for a superannuation contribution count towards your concessional contributions cap for the 2009-10 income year?
Advice/Answers
No.
This ruling applies for the following period
Year ending 30 June 2010
The scheme commenced on
01 July 2009
Relevant facts
Towards the end of the 2009-10 income year a bank cheque was paid into the bank account of your company.
Two days later the company drew a cheque (the cheque) for the same amount which was then presented, through your financial advisor, to bank A for your superannuation fund (the fund).
Several days later you were advised by bank B that your transaction was unable to be processed as there were insufficient funds.
A day later bank A advised that the cheque had been returned unpaid.
In the 2010-11 income year your financial advisor advised you that the cheque had been dishonoured.
You state that the cheque is for a superannuation contribution for yourself for the 2009-10 income year.
The cheque was resubmitted and subsequently cleared in the 2010-11 income year.
You are the director of your company which is also the corporate trustee of the fund. You are also the sole member of the fund.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 292-15
Income Tax Assessment Act 1997 Subsection 292-20(2)
Superannuation (Excess Concessional Contributions Tax) Act 2007 Section 4
Superannuation (Excess Concessional Contributions Tax) Act 2007 Section 5
Income Tax (Transitional Provisions) Act 1997 Subsection 292-20(2)
Reasons for decision
Summary of decision
The cheque made to the fund was not presented and honoured until the 2010-11 income year. Therefore, the contribution does not count towards your concessional contributions cap for the 2009-10 income year.
The contribution made will count towards your concessional contributions cap for the 2010-11 income year, being the income year in which the contribution was made.
Detailed reasoning
From 1 July 2007, concessional contributions made to superannuation funds are subject to an annual cap. The concessional contributions cap is indexed to upward movements of average weekly ordinary time earnings (AWOTE) in $5,000 increments (subsection 292-20(2) of the Income Tax Assessment Act 1997 (ITAA 1997)). For the 2009-10 and 2010-11 income years the annual cap is $25,000.
Concessional contributions are contributions made in respect of a person in the financial year to a complying superannuation plan and included in the assessable income of the superannuation provider. Concessional contributions include employer contributions, salary sacrifice contributions and personal contributions claimed as a tax deduction by a self-employed person.
A person will be taxed on concessional contributions over the annual cap at a rate of 31.5% (subsection 292-15 of the ITAA 1997 and sections 4 and 5 of the Superannuation (Excess Concessional Contributions Tax) Act 2007).
Between 1 July 2007 and 30 June 2012, a transitional concessional contributions cap will apply. In the 2009-10 and 2010-11 income years, the annual concessional contributions cap will be $50,000 for people aged 50 or over. If a person has more than one fund, all concessional contributions made to all their funds are added together and count towards the cap (subsection 292-20(2) of the Income Tax (Transitional Provisions) Act 1997).
If a person has more than one fund, all concessional contributions made to all their funds are added together and count towards the cap.
In relation to concessional contributions for a financial year section 292-25 of the ITAA 1997 states:
(1) The amount of your concessional contributions for a financial year is the sum of:
(a) each contribution covered under subsection (2); and
(b) each amount covered under subsection (3).
(2) A contribution is covered under this subsection if:
(a) it is made in the financial year to a complying superannuation plan in respect of you; and
(b) it is included in the assessable income of the superannuation provider in relation to the plan; and
(c) it is not any of the following:
(i) an amount mentioned in subsection 295-200(2);
(ii) an amount mentioned in item 2 of the table in subsection 295-190(1),
(iii) a contribution made to a constitutionally protected fund.
(3) An amount in a complying superannuation plan is covered under this subsection if it is allocated by the superannuation provider in relation to the plan for you for the year in accordance with conditions specified in the regulations.
(4) Disregard Subdivision 295-D for the purposes of paragraph (2)(b).
Taxation Ruling TR 2010/1 entitled 'Income tax: superannuation contributions' sets out the Commissioner's view on contributions made to a superannuation fund, an approved deposit fund or a retirement savings account.
Item 3 of paragraph 13 of TR 2010/1 states that if funds are transferred by giving the superannuation provider a money order or bank cheque then the contribution is made when the money order or bank cheque is received by the superannuation provider, unless the order or cheque is dishonoured.
In relation to the transfer of funds TR 2010/1 states at paragraphs 157:
157. As noted in ' Mann on the Legal Aspect of Money' in the course of discussing the concept of 'payment':
... the mere acceptance of the cheque or other instrument by the creditor does not of itself constitute 'payment', for it does not have the effect of making funds available to the creditor; such instruments only constitute payment if they are subsequently honoured ...
In relation to when a superannuation contribution is made in relation to cheques and promissory notes TR 2010/1 goes on to state at paragraphs 188 and 190:
188. Subject to the qualification in paragraphs 190 and 191 of this Ruling, a contribution made by money order, cheque or promissory note is made when the order, cheque or note is received by the trustee of the fund. As stated in footnote 2 and paragraph 154 of this Ruling, if the cheque or note is dishonoured, no contribution will have been made by the person.
…
190. In the case of a personal cheque or a promissory note that is contributed by the maker, the Commissioner will treat the contribution as being made when the cheque or note received by the superannuation provider only if the superannuation provider promptly presents the cheque or note for payment and the cheque or note is honoured with cash (or its electronic equivalent).
From the above, it can be said that a fund member is only taken to have made a contribution to their superannuation fund when the superannuation fund receives it.
In this case a cheque (the cheque) was made to your superannuation fund (the fund) as a superannuation contribution for you on in the 2009-10 income year. The cheque was subsequently dishonoured by the paying bank and returned unpaid.
The cheque was resubmitted on in the 2010-11 income year and subsequently cleared. Therefore, the contribution was not made in the 2009-10 income year. Consequently, the contribution will not count towards your concessional contributions cap for the 2009-10 income year.
As the contribution was made in the 2010-11 income year, it will count towards your concessional contributions cap for the 2010-11 income year.
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