A recent Australian Tax Office (ATO) interpretative decision has confirmed that a member can make a contribution to a self-managed super fund (SMSF) prior to 30 June 2012, claim the deduction for the 2012 financial year, and the trustee of the SMSF can allocate the contribution to the member in July 2012 so that it counts toward the contribution caps in the 2012/13 financial year.
In ATO ID 2012/16, a member of an SMSF made a personal contribution of $25,000 on 4 April 2011 and a subsequent contribution of $25,000 on 28 June 2011. The trust deed allowed the trustees to credit the 28 June contribution to a reserve account and allocate the contribution to the member in the following financial year.
The ATO agreed with the trustees’ actions and allowed it to be counted as a concessional contribution in the financial year of allocation rather than the year of receipt. This meant that the member was allowed a deduction of $50,000 in his income tax assessment for the 2010/11 financial year even though the member’s concessional contributions cap for that year was $25,000.
There are specific rules that trustees should be aware of if they allocate contributions on this basis. For example, the trustee must allocate the contribution to a member of the fund:
- within 28 days after the end of the month; or
- if not reasonably practicable to allocate within that time, such a longer period as is reasonable.
This can be an effective way of managing contributions but can only be done if the trust deed of the fund allows for it.
Advisers and members of SMSFs contemplating this must review their trust deeds to take advantage of this strategy and update where necessary.
If you would like to discuss any issues relating to the information in this alert, please contact a member of our commercial team on 07 3231 2444.