ATO ruling confirms contribution arrangements

SMSF specialist company Cavendish Superannuation has claimed vindication from a recent Australian Taxation Office ruling (ATO ID 2012/16) which it says confirms its analysis around concessional contribution arrangements.

In an analysis issued to clients this month, Cavendish head of education David Busoli said the ruling "confirms our analysis that concessional contributions for both the current and following year may be made in the current year, and though seemingly in excess of the caps, won’t trigger a cap breach provided certain conditions are satisfied and it results in a tax deduction for both contributions in the current year".

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Busoli cited as an example a member of a SMSF making a personal contribution of $25,000 to their fund on 4 April 2011 and the trustees of the fund immediately allocating this contribution to the member in accordance with sub-regulation 7.08(2) of the Superannuation Industry Supervision Act.

The member made a further personal contribution of $25,000 on 28 June 2011. The trustees applied this amount to an unallocated contributions account that had been established in accordance with the governing rules of the fund.

On 4 July 2011, the trustees resolved to allocate the amount credited to the unallocated contributions account to the member. 

The member satisfied all the conditions necessary to deduct both personal contributions made in the 2010-11 income year and was allowed a deduction of $50,000 in his income tax assessment for that year.

The member’s concessional contributions cap for the 2010-11 financial year was $25,000.

Busoli said the key assumptions in the scenario were that:

•  the fund’s deed must allow the practice;
•  the sum of the concessional caps for both the current and following year are not breached;
•  the contributions applicable to each cap were made separately;
•  the contribution that is to be allocated in the following year is made in June; 
•  an unallocated contributions account – not a reserve – is referred to, thus removing the need to construct a separate investment strategy.