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ATO releases interpretative decision on allocation of June contributions

The ATO has released ATO ID 2012/16 which addresses the timing issue of when a concessional contribution is made on behalf of a member in one financial year but is allocated in the following financial year for the purposes of the contribution caps.

Until the release of this ATOID, the industry has been relying on minutes from the ATO NTLG Superannuation Technical Sub-Group dating back to June 2009 regarding the Commissioner’s interpretation of calculating a member’s concessional contributions under section 292-25 of the Income Tax Assessment Act 1997 (ITAA 1997).  This strategy to effectively ‘park’ concessional and/or non-concessional contributions made in June has become popular to:

  • manage potential excess contributions problems; or
  • use as a strategy to transfer assets into a fund where the value may be greater than the cap but can be amortised over two financial years (e.g. business real property transfer)

ATO ID 2012/16 confirms that an amount made in June is not counted as a concessional contribution in the financial year it is made, but the year it is allocated.  Importantly the deduction for the taxpayer is available in the year the contribution is made.  In addition, the concessional contribution is subject to contributions tax in the year the payment is made.  The allocation of the contribution for member reporting purposes is reported in the following financial year.

Can a member ‘double dip’ on the concesssional contribution limit?

Yes they can.  The taxpayer (assume under 50) could have $25,000 concessional contributions made during the year, then make an additional $25,000 in June, enabling a $50k tax deduction.  $25k is allocated to the member in the current financial year, with the $25k in June taxed within the fund, but the allocation not occurring until the following financial year (before 28 July).  For those over 50, the timing of notices can be very important in particular if members are commencing a pension.  Furthermore, you need to be conscious amounts to be held over for the 2012/13 year with the transitional period of the contribution caps ceasing.   You may also need to determine whether the member’s account balance is under $500,000 to see whether an income to be allocation in the following year can be $25k or $50k.

Does it need to be a Contribution’s reserve?

No, interestingly in both the ATOID and NTLG minutes the ATO make reference to the amount being temporarily held within a ‘holding account’ or suspense account.  There is no requirement for a reserve to be created to hold the contribution.  It would be fair to say that the ATO aren’t too fond of the word “reserve’ and their use within the SMSF environment.  You may see many deeds referencing the use of a reserve to hold the contribution.  Therefore, whilst not preferred by the ATO, you still need to remember that the fund must comply with the requirements of its governing rules (trust deed).

With the ‘once-off’ refund of Excess contribution for concessional contributions available for the current financial year, we now have a couple of mechanisms to assist in dealing with potential excess contribution problems.  There are also opportunities to use this strategy to reduce the impact of large capital gains from the disposal of assets through having two bites of a contribution limit in the one financial year.

As they say…. it is all in the timing!!

View ATO ID 2012/16 here

Comments

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10 thoughts on “ATO releases interpretative decision on allocation of June contributions

  1. Good article.
    Does it make any difference to the outcome if a member also makes non-concessional contributions during the say year.

    • Hi Rob,

      The allocation rules apply equally to non-concessional contributions as much as concessional contributions. Just need to be careful with large single contributions so that they are not fund-capped or also suggest not making contributions as a single amount, otherwise ATO are likely to not allow the contribution to be split.

      Regards,
      Aaron

  2. I have seen the ATO take the $100k super deduction from personal return and apply it automatically against the member $50k cap. Their systems dont recognise this strategy yet.

    • Hi Rob,

      It is fair to say that the ATO systems will struggle with this issue, hence the importance of appropriately reporting and documenting the strategy. However, just because a system can’t cope with the strategy doesn’t mean it can’t be done.

      Regards,
      Aaron

  3. Hi Aaron

    I know this is an old post, but the ATO’s system is still struggling with this, apparently, as ECT notices are automatically generated and the only advice I’ve had from them is to lodge an objection.

    Any tips on how to get it recognised from the start?

    Thanks
    Louise

    • Hi Louise,

      I’ve had this discussion with several industry people about the ATO’s systems sending off an ECT assessment because of the strategy. I haven’t had a discussion with the ATO on the matter, but I would have thought the flag for the ECT assessment would have come from a self-employed notice being lodged for $50k (or other amount above the relevant CC cap). The excess notice certainly shouldn’t be flagged from the way the super fund reports the contribution, because it should only report $25k for the year in which the contribution was made. This doesn’t provide an answer for employer contributions though? Are you experiencing the issue with self-employed contributions or employer contributions?

      I’ve seen quite a few problems of double counting contributions due to incorrect tagging of concessional contributions between employed and member deductible contributions, with the ATO triggering ECT assessments. The SMSFs then needed to amend the return to match the s.290-170 notice that was lodged, rather than showing as employer contributions. Hence, my thoughts as to why the issue I think rests with the cross-checking in the ATO systems.

      Not sure I’ve actually helped answer you question, but hopefully gave some insight into where the problems may exist.

      Regards,
      Aaron

  4. Hi Aaron,

    Not too much information about this around so looking for some insight. We have received some excess contribution notices where members have used the reserve strategy. Upon contacting the ATO they advised to complete “Application – excess contributions tax determination” NAT 71333-11.2010. When reading through this form I get the feeling that its still up to the commissioner to determine if we can use it or not. This is worrying given we have used it quite a lot as both a tax planning strategy and to fix clients/employer contribution errors. I was of the opinion that ATO ID 2012/16 made it pretty clear this could be done and that our actions didn’t necessarily have to be explained other than perhaps saying, we have used a reserve. I am starting to think that the person i spoke with at the ATO may have given me the wrong information. The form itself is quite detailed and involves having signed statements and supporting evidence which i would have thought may have only been necessary if we went down the audit path.

    As an example the one I am currently looking into involves someone claiming $75,000 personal deduction for super in the 2012 year, having reserved $25,000 in their SMSF.

    Your insight and perhaps others experience in their dealing with the ATO would be appreciated.

    Michael

    • Hi Michael,

      From discussions I have had with practitioners within the industry, the ATO’s systems are obviously not designed to cope with this strategy. As a result, you will need to object to the ECT assessment and provide the necessary evidence to show how you have implemented these contributions in accordance with ATOID 2012/16. I would suggest getting on the ‘front-foot’ and discuss this with the ATO with a view to providing the documentation as and when required.

      I will endeavour to find out more and come back to you with further comments via this blogpost.

      Cheers,
      Aaron

      • Hi Michael,

        A further update for you following a discussion today with the ATO. You will need to object to the assessment for the ECT amount issued to the individual and apply to have the June contribution amount reallocated into the following income year. The ATO indicated that you can commence this process prior to receiving an ECT notice, but suggest you liaise with them to note on file that an objection will be instigated. You need to objection using form – NAT 71333, from the ATO website – http://www.ato.gov.au/Forms/Excess-contributions-tax-determination/ and supply the necessary info to the ATO supporting your objection in accordance with ATOID 2012/16. The Commissioner will then make a determination whether to reallocate the contributions to the following year.

        I trust this helps, good luck!

        Regards.
        Aaron

      • Thanks Aaron. Looks like I have more work to do. Appreciate you looking into this. Enjoying the podcast too, keep it up!

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