30/04/2013

Now is the time to check and double check those contribution caps.  If you or your clients are going to make further contributions prior to June 30 it's important to learn from those who have gone before you and fallen foul of the ATO through contribution timing errors with dire implications.

Rule 1: When is a payment actually made?
Verschuer v FCT [2013] AATA 12 was a case where Dymocks had made a payment of $90,000 (as a concessional contribution for a director and partner of the owner) to a clearing account of Colonial First Choice on 27 June 2008.  However payment was only actually applied to the member’s account on 23 July 2008.  This resulted in the contributions being made in the following financial year.
Without knowing of the delay in the contributions being applied to her member account, during the 2008/2009 financial year Verschuer made further contributions of around $90,000 (concessional contribution cap was $100,000 at that time), and $450,000 non concessional contributions invoking the bring forward rule.
When the original $90,000 contribution intended to be made in the 2007/2008 financial year was delayed until the 2008/2009 financial year Verschuer had clearly breached the contribution cap limits (reportedly by $89,314.21) and this resulted in excess contributions tax being levied of about $70,000.
What did we learn? Check not only all contributions made for both this year and the previous year, but also the dates they were actually received by the Fund.  Indeed, know your client’s full contribution history for the last three years just in case.

Rule 2: Careful with your administrative processes
Davenport v FCT [2012] AATA 760 showed the need for attention to detail.  Here payments were transferred on 27 June 2008.  Although it was not until 1 July 2008 that the funds were credited to Davenport’s account.
The reason for the delay was that Electronic Funds Transfer (EFT) payments were made with no clear details to identify the relevant member or account.  This was referred to in the case as ‘clerical errors’.
Despite these errors being beyond the control of the member who did not process the payment themself it resulted in excess contributions tax being levied as the contributions were actually made upon the allocation to Davenport’s account rather than during the previous financial year as intended.
What did we learn? Know precisely how electronic payments will be treated within the electronic payments system and don’t leave it til the last minute to make those payments.  Ensure that any specific requirements by the receiving Fund are met when making payments using electronic transfers (for example including your client’s membership number as a reference).
 
Rule 3: Knowing just some of the rules is dangerous
Applicant 1659 of 2012 and FCT [2012] AATA 754 involved a member who had knowledge of the processing of superannuation employer contributions (SG).  Each year the member chose to salary sacrifice her annual bonus.  The company sent a cheque containing both the member’s salary sacrifice and the employer SG contributions.  The cheque was received by her Fund on 3 July 2009.
The member knew that employer SG contributions could be received within 28 days of the end of the month.  Unfortunately the member believed the same principle also applied to personal concessional contributions being accepted up to 28 days following the end of the month.  This resulted in excess contributions tax being levied as the time of the contribution being made was based on the time the cheque was actually received.
What did we learn? Know the precise allowable time for contribution of the various different types of contributions and don’t guess that they are all the same.

Although the recent 5 April Changes to Superannuation will introduce a different way of treating excess contributions (if they are ever passed and not repealed by a new government) it is unwise to allow a fund to accept excess contributions.  The consequences are not always apparent and will most likely be very onerous.

For further information, please contact Townsends Business & Corporate Lawyers on (02) 8296 6222.