An Administrative Appeals Tribunal (AAT) ruling has highlighted the dangers of relying on the instantaneous nature of electronic funds transfers (EFTs) to make last minute superannuation contributions.
The recent case the AAT heard related to contributions made through an EFT to a self-managed superannuation fund (SMSF) on 30 June 2007.
On this date, one of the members of the fund transferred $60,000 from a discretionary trust into the SMSF to be treated as a $40,000 concessional contribution for himself and a $20,000 concessional contribution for his wife in the 2007 financial year.
However 30 June that year fell on a Saturday and the transfer was not processed until the bank opened for business again on Monday 2 July.
As such the Australian Taxation Office deemed both contributions to have been made in the 2008 financial year denying the SMSF members of the associated tax deduction in 2007. Furthermore this treatment resulted in the members exceeding their contributions limits leading to an excess contributions tax liability (ECT) of $17,010.
The SMSF members approached the AAT to have the ATO’s decision over turned arguing it was logical the contributions had been meant for the 2007 financial year.
However the AAT ruled in favour of the ATO stating in this instance, the commissioner could not use discretion to treat the contributions as pertaining to the 2007 financial year as it was not “reasonably foreseeable” the existing treatment of the contributions would lead to an ECT and the SMSF members were in control of the contribution throughout the transaction.
Importantly, the AAT decision re-enforced the ATO’s ability to recognise a superannuation contribution only when the funds have been accounted for in the SMSF’s bank account, in this case on 2 July 2007.
In assessing the case SMSF administration specialists Super Concepts said: “The tribunal ruled that the taxpayer should have known that his actions could lead to an excess concessional contribution.
“Whilst it was obvious the taxpayer intended for the contribution to apply to the year ended 30 June 2007, it was his responsibility to ensure the steps taken to realise that intention were effective.”
From the case the SMSF specialists drew one important conclusion for superannuation members to be cognisant of in this financial year.
“If an EFT is being made, it is best practice to ensure and contribution is recorded in the fund’s bank account prior to 30 June 2012,” Super Concepts said.
