As we move towards the end of another financial year, there is often a rush to make superannuation contributions and have them counted in the current financial year.
However, there are some important timing constraints to be mindful of.
Back in 2010 the Australian Taxation Office released a very interesting – well interesting for some of us – taxation ruling that covers superannuation contributions.
Since 2010 there have been some significant changes to the superannuation landscape however one aspect of the ATO’s ruling remains as applicable today as it was in 2010.
That is around the timing of contributions, and when a contribution is treated as having been received by the superannuation fund.
I still have vivid memories of the days before electronic banking when, while working for a large retail superannuation fund, we would remain open on the last day of the financial year until very late in the evening to receive hand-delivered cheques for superannuation contributions. Fortunately, those days are long passed.
But I digress – let’s get back on topic.
Taxation Ruling 2010/1 provides some useful guidance on when a superannuation contribution is deemed to have been made. This becomes vitally important when the contributor intends to claim a tax deduction for their contribution, or when timing is important in order to manage an individual’s contributions caps.
Following is a brief extract from the Ruling:
|Contribution made by||When it is deemed to have been made|
|Cash payment||The cash is received by the superannuation fund|
|Electronic transfer||When the funds are credited to the super funds bank account|
|Bank cheque||When received by the superannuation fund|
|Personal cheque||The cheque is received by the superannuation fund provided it is promptly presented and honoured|
The Ruling contains other examples including post-dated cheques, promissory notes, and the in-specie transfer of physical assets like shares and real property, however, we won’t go into those here.
While delivering a personal cheque or cash to a superannuation fund is self-explanatory, obtaining a receipt for the contribution is important, particularly if it is not banked and credited to the member’s superannuation account before the end of the financial year. The mere fact the contribution has been received by the superannuation fund by the end of the financial year is sufficient to have it treated as a contribution in the current year.
However, here is the first red flag – some superannuation funds close off accepting contributions before the end of the financial year. This is to enable them to complete the necessary processing before 30 June.
If planning to contribute by cheque (or cash), make enquiries with your superannuation fund to determine if they have a close-off date. Furthermore, if intending to mail a contribution, allow plenty of time for the contribution to be received in time.
While making contributions by cheque – who still has a cheque book? – is very old-school, electronic transfers and direct debiting and crediting have become everyday practice.
However, contributing by BPAY or direct transfer to your favourite superannuation fund at 4pm on 30 June does not guarantee your contribution will be received on time.
While some banks will transfer funds almost instantaneously, it may take two or three working days for your contribution to be credited to your super fund’s bank account.
Also, many superannuation funds have different BPAY or account codes for different type of contributions, e.g. personal contributions, spouse contributions, employer contributions. Ensuring contributions are made to the correct account is vital as attempting to correct the classification of a contribution made to the incorrect account can be a very challenging and time-consuming experience.
The late receipt of contributions can play havoc with many common-place superannuation strategies, from claiming a tax deduction for personal contributions, to maximising non-concessional contributions using the three-year bring forward rule.
Timing is everything.
Allowing plenty of time for a contribution to be received and processed by your super fund is highly advised.
While on the topic of making superannuation contributions, it is worth also highlighting that in certain cases, a prescribed notice identifying the type of contribution must be given to the superannuation fund.
Downsizer contributions, small business capital gains tax contributions, and the contribution of proceeds of a personal injury settlement all require a notice to be given to the superannuation fund no later than when the contribution is made.
Where it is intended to claim a tax deduction for a personal contribution, a “notice of intent” needs to be given to the superannuation fund within a prescribed period, although this may be after the contribution is made.
If planning to make contributions to superannuation this financial year, consider speaking with a licensed financial adviser to ensure your contribution is made in an effective and timely manner.
By Peter Kelly on 18 May 2023
PK believes people have the right to accurate, affordable and unbiased information that addresses all aspects of their preferred retirement lifestyle, thereby giving them the opportunity to make informed decisions that will empower them to live out their lives with dignity, certainty and security.
Tealey’s ambition is to change how people think about their retirement, he wants people to dream, plan and realise retirement is not defined by a magical age prescribed by the legislation.