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Ruling

Subject: Superannuation contributions

Question

Is an amount paid to a bank account incorrectly held in the name of a superannuation fund (the Fund) a contribution for the purposes of Division 292 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer: No.

This ruling applies for the following period:

Year ended 30 June 20XX

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

The Superannuation Fund

During the 20XX-XX income year a complying self managed superannuation fund (the Fund) was established.

The Fund's members were the directors of the Fund's corporate trustee (the Trustee) and were both less than 50 years of age.

The members were informed by the superannuation manager from their accountant's firm of the various superannuation contribution caps and the importance of not exceeding the caps. Documents evidencing this have been provided.

Details of the contributions made to Fund, from its establishment to the present, have been provided.

Details of the Fund's assets have been provided and the central management and control of the Fund is held in Australia.

Creation of Fund's Bank Account

Shorty after the Fund was established a bank account (the Fund Bank Account) was created in the Trustee's name on behalf of the Fund.

The trustee states the Fund Bank Account is the only bank account for the Fund as it was established to pay for the Fund's expenses, receive contributions in relation to the members and roll-overs from their other superannuation funds.

Statements for this bank account, from the date of its establishment, have been provided. These statements show the transactions that occurred on the account were mainly in relation to contributions, roll-overs and expenses related to the Fund.

Financial Advice

Prior to the establishment of the Fund the members were in communication with their accountant (the accountant) as they would be in receipt of a large of money during the 20XX-XX income year. A large amount of this money, which was outside of superannuation, would be from the disposal of certain shares ('the shares').

The members were advised of:

i. the amounts they should each contribute during the 20XX-XX income year and what they could contribute in the 20XX-XX income year;

ii. the amount the members were each able to contribute as non-concessional contributions per annum;

iii. the 'bring forward rule' to make $450,000 of non-concessional contributions over a three year period;

iv. the best way to contribute the highest amount to superannuation in a short time by each member before and after 30 June  20XX;

v. how the bring forward rule would be triggered and the application of excess non-concessional tax if the caps were exceeded; and

vi. the amounts the members could contribute as concessional contributions before 30 June 20XX.

A financial planner subsequently advised the members of strategies relating to large amounts of money, outside of the superannuation sphere, which they were expecting to receive. In that advice the planner proposed:

i. the amounts to be placed into superannuation;

ii. when the amounts relating to superannuation should be contributed; and

iii. the amounts that should be applied for investments and purposes outside of superannuation.

Subsequent to the advice from the financial planner, the shares were sold and the proceeds were deposited into the bank account held by one of the members outside of superannuation (Account A).

Creation of the 'Other Bank Account'

Shortly before the large amounts of money were received, one the members, as an individual outside of superannuation, opened another bank account which was also in the Trustee's name on behalf of the Fund (the Other Bank Account).

The member states that the 'Other Bank Account' was never intended to be in the name of the Fund and cannot recall how the mistake arose. The member also states it was never intended to have this account in the Trustee's name and that its purpose was to be as a related vehicle to identify monies that would not be part of the Fund.

The member states that when a large amount was transferred from Account A to the Other Bank Account in the 20XX-XX income year it was never intended to be transferred to superannuation or that the Other Bank Account was in the name of the Fund.

Withdrawals from the Other Bank Account show the amounts which were applied as contributions to superannuation only occurred in the 20XX-XX income year. These contributions to superannuation were in the form of a term deposit in the Fund's name and a transfer of money to the Fund Bank Account.

Awareness of two bank accounts in the Fund's name

Bank statements for the 'Other Bank Account' are only produced periodically.

Shorty after realising there were two bank accounts held in the Fund's name and the members contacted their accountant for advice on rectifying the matter.

Copies of communications between the members and their accountant in relation to the 'Other Bank Account' being incorrectly in the same name as the Fund have been provided.

Relevant legislative provisions

Income Tax Assessment Act 1997 Division 292.
Income Tax Assessment Act 1997 Section 292-1.
Income Tax Assessment Act 1997 Subparagraph 292-90(3)(c)(vi)

Summary

On the basis of the information provided, the amount deposited to a second bank account (the Other Bank Account), which was incorrectly held in the name of the Fund, is not a superannuation contribution.

Detailed reasoning

Division 292 of the Income Tax Assessment Act 1997 (ITAA 1997) contains legislative provisions relating to excess contributions tax and as stated in section 292-1:

This Division limits the superannuation contributions made in a financial year for a person that receive concessionally taxed treatment. (emphasis added)

To ensure the amount of concessionally taxed superannuation benefits that a person may receive, Division 292 of the ITAA 1997 also details, amongst other matters:

· what constitutes a concessional and non-concessional contribution;

· the limits (caps) for concessional and non-concessional contributions (for the 20XX-XX income year the cap for concessional contributions where the member is under 50 years of age is $25,000. In respect of non-concessional contributions, provided the member is able to make a contribution due to their age and whether they are gainfully employed, the cap is $150,000.

Further, for members under 65 years of age they may be able to make non-concessional contributions of up to three time their non-concessional contributions cap over a three year period. This is known as the 'bring forward' option; and

· the liabilities for excess concessional contributions tax and excess non-concessional contributions tax when contributions exceed the caps.

Though Division 292 of the ITAA 1997 makes reference to the term 'contribution', it should be noted that this term is not defined in Division 292 or elsewhere in the ITAA 1997.

The Commissioner of Taxation however has issued Taxation Ruling TR 20XX/1 entitled 'Income tax: superannuation contributions' (TR 20XX/1). The ruling explains the Commissioner's views as to the ordinary meaning of the word 'contribution' in so far as 'contributions' is used in relation to superannuation fund, approved deposit fund or retirement savings account in the ITAA 1997.

Paragraph 4 of TR 20XX/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. (emphasis added)

As to how 'purpose' is determined paragraphs 6 to 9 in TR 20XX/1 state:

6. Not every increase in the capital of a fund is a superannuation contribution as a person who increases a fund's capital must have the purpose of benefiting one or more particular members of the fund or all of the members in general. (emphasis added)

7. A person's purpose is the object which they have in view or in mind. Generally, a person will be said to intend the natural and probable consequences of their acts and likewise their purpose may be inferred from their acts. This is a determination of a person's objective purpose, not their subjective intention. (emphasis added)

8. A person will not normally have a purpose of benefiting a member of the fund if the transaction they carry out is in no way dependent upon the identity of the other party as a superannuation provider or they are simply fulfilling the terms of a contract or arrangement entered into on a commercial or arm's length basis.

9. By contrast, an objective determination of a person's purpose may in some cases lead to the conclusion that the person's purpose is to benefit one or more particular members of the fund or all of the members in general. This may occur when a transaction or arrangement is entered into because of a connection or relationship between the person and the superannuation provider or cannot be explained by reference to commercial or arm's length dealings.

In relation to how the capital of a superannuation fund may be increased, either directly or indirectly, TR 20XX/1 states that this may be done by any of the following:

· transferring funds to the superannuation provider;

· rolling over a superannuation benefit from another superannuation fund;

· transferring an existing asset to the superannuation provider (an in specie contribution);

· creating rights in the superannuation provider (also an in specie contribution); or

· increasing the value of an existing asset held by the superannuation provider.

· paying an amount to a third party for the benefit of the superannuation provider;

· forgiving a debt owed by the superannuation provider; or

· shifting value to an asset owned by the superannuation provider.

In your client's case the facts show that subsequent to the establishment of their superannuation fund (the Fund) two bank accounts were created in the Trustee's name on behalf of the Fund.

The bank statements show the amounts deposited into the Fund Bank Account and the Other Bank Account during the 20XX-XX income year.

Further, it is noted that of the amounts deposited into the Fund Bank Account a large amount related to roll-overs from other superannuation funds to which the members formerly belonged. Under subparagraph 292-90(3)(c)(vi) of the ITAA 1997 the roll-over amounts do not represent non-concessional contributions.

As both accounts are in the name of the Fund it appears that prima facie the total combined deposits from these accounts, excluding interest and roll-overs, exceeded the non-concessional contribution cap.

However, as most of the total deposits relate to a large deposit (the Deposit) made to the 'Other Bank Account' from Account A, and your client states that the 'Fund Bank Account' is the Fund's only bank account, the issue that requires consideration is whether the Deposit was a superannuation contribution.

In order to determine whether the Deposit was a superannuation contribution it is necessary to determine, as mentioned previously, the purpose for which the deposit was made to the 'Other Bank Account' and whether the deposit increased the Fund's capital.

Background to the Deposit

Prior to the establishment of the Fund it is noted that communications were held between the members and their accountant and they were advised of the concessional and non-concessional contribution caps.

Shorty after the Fund was established the Fund Bank Account, which the trustee states is the only bank account for the Fund, was established to pay the Fund's expenses, receive contributions in relation to the members and roll-overs from their other superannuation funds.

In addition the accountant restated the caps to the members and on another occasion a financial planner provided the members with investment strategies which ensured that monies that went towards superannuation would not exceed the caps.

As the members were expecting to receive large amounts of money from various sources, the financial planner advised the members of strategies, which included ways not to exceed the superannuation caps, by detailing:

i. the amounts to be placed into superannuation;

ii. when the amounts relating to superannuation should be contributed; and

iii. the amounts that should be applied for investments and purposes outside of superannuation.

Subsequent to the advice from the financial planner, a large parcel of shares were sold and the proceeds were deposited into the bank account held by one of the members outside of superannuation (Account A).

A large deposit (the Deposit) was later transferred from Account A to the Other Bank Account and this occurred in the 20XX-XX income year.

Withdrawals from the Other Bank Account show the amounts which were applied as contributions to superannuation only occurred in the 20XX-XX income year. These contributions to superannuation were in the form of a term deposit in the Fund's name and a transfer of money to the Fund Bank Account.

Purpose of the Deposit

Notwithstanding the Other Bank Account is in the name of the Fund, it is considered that the Deposit was not for superannuation purposes nor was the account ever intended to be treated as an account of the Fund as:

i. One of the member's stated the 'Other Bank Account' was never intended to be in the name of the Fund and that its purpose was to be as a related vehicle to identify monies that would not be part of the Fund.

ii. The members were made aware, through their communications with their accountant and financial planner, not to exceed their contribution caps and were accordingly provided with strategies not to exceed the caps.

iii. The members followed those strategies with the only departure being that the Other Bank Account was incorrectly named in that of the Fund. When your client became aware of there being two bank accounts in the Fund's name, it is noted that their accountant was immediately contacted to try and rectify the matter.

iv. An analysis of the Other Bank Account, the actions which occurred prior to the deposit being made and the interaction with the Fund Bank Account, indicate that the purpose of the Other Bank Account was to act as a holding account outside of superannuation.

v. Further, as a holding account the amounts deposited therein were not designated as being specifically for superannuation purposes.

vi. Rather, if any amounts were designated for superannuation, this did not occur when the Deposit was into the account but when amounts were later withdrawn from the Other Bank Account in the 20XX-XX income year.

vii. The timing of the withdrawals from the Other Bank Account shows that the account was used to 'park' monies outside of superannuation. Some of these monies which were later applied for superannuation purposes in the 20XX-XX income year were in accordance with the financial planner's strategy so as not to exceed the superannuation contribution caps.

viii. The Deposit, as shown by the member's statement at (i), was made in the belief that the Other Bank Account was not in the name of the corporate trustee on behalf of the Fund. This indicates when the deposit was made the members were not aware the account was actually in the name of Fund.

Coupled with the members contacting their accountant to rectify the matter when they became aware of this situation, it can be seen that when the Deposit was made to the Other Bank Account they were mistaken as to identity of the account holder.

Accordingly, as the Deposit was not made to the Other Bank Account for superannuation purposes, and the facts show this account was not intended or operated as a Fund account, it is considered that the Deposit was not made for the benefit of the Fund's members.

Did the Deposit increase the Fund's capital?

As the purpose for the deposit has been discussed, it should be noted that another issue mentioned in paragraph 4 of TR 20XX/1 which is considered by the Commissioner in determining a contribution is whether it is anything of value that increases the capital of a superannuation fund and it is for the benefit of one or more particular members of the fund or all of the members in general.

In your client's case it is considered that the Deposit to the Other Bank Account did not increase the capital of the Fund based on the following:

i. As the Other Bank Account is considered to be an account held outside superannuation, for reasons already discussed, it does not represent an account of the Fund.

Accordingly, when the deposit was made the Fund's capital was not increased. Rather, the Fund's capital was only increased from this account when monies were withdrawn from it in the 20XX-XX income year to establish a Term Deposit in the Fund's name and an amount was transferred as a contribution to the Fund Bank Account.

Further, it should also be noted that as the Other Bank Account is not an account of the Fund, it follows that interest earned on this account does represent income of the Fund or add to the Fund's capital;

ii. Apart from the withdrawals from the Other Bank Account mentioned above, the only other increases to the Fund's capital result from the deposits made to the Fund Bank Account and the interest from the Term Deposit;

iii. The members' accounts in the Fund do not list the amount deposited to the Other Bank Account as representing a contribution. Thus the deposit is not treated as representing a superannuation benefit for any of the members.

The only contributions recorded for the members in the Fund are amounts transferred from the Other Bank Account to the Fund Bank Account, the Term Deposit and the amounts, excluding interest, deposited to the Fund Bank Account; and

iv. Details of the Fund's assets have been provided and they show that they do not arise from the Deposit made in the 20XX-XX income year.

Conclusion

The Deposit to the Other Bank Account in the 20XX-XX income year is not a superannuation contribution for the purposes of Division 292 of the ITAA 1997.