The rules relating to contributions to superannuation are constantly changing. Consider, for example, the deceptively simple question of how much after tax contributions can a person make. Depending on when in the past 11 years a person asked this question, there have been at least four answers – and there is soon to be a fifth answer.
Similarly, consider for example the equally-deceptively simple question of how much tax-deductible contributions can a person make. Depending on when in the past 11 years a person asked this question, and the relevant person’s age, there have been at least nine answers and there is soon to be another!
However, there are some constants. I am keen to review a few issues that — regardless of rule change — are fairly constant.
June 30 is not the real deadline for contributions
If a client asks when is the latest they can make a contribution for a financial year, the short answer is 30 June. However, that is a very dangerous answer. I think the practical answer should be 20 June.
Consider, for example, the case of Liwszyc v Commissioner of Taxation [2014] FCA 112. Liwszyc was the sole director of a company. On 30 June, 2009, the bookkeeper of the company made two superannuation contributions in respect of Liwszyc. The payments were made via BPay. However, the superannuation fund (AMP Superannuation Trust) did not show the contributions as having been received until 1 July 2009. Naturally, this meant
the contributions were recognised in the 2010 financial year instead of the 2009 financial year.
This was despite Liwszyc’s evidence that the payments were clearly marked that as being for the 2009 financial year.
This meant that Liwszyc had excess concessional contributions and thus excess concessional contributions tax. (Note that the subsequent introduction of div 291 into the Income Tax Assessment Act 1997 means that these facts would no longer give rise to excess concessional contributions tax, however, they could still have negative tax implications.)
This case illustrates the dangers of leaving contributions to the last minute.
I think that advisers need to build a buffer regarding contributions. For example, advisers might contact clients well before the end of the financial year and say that they are wise to pretend that there is a moratorium on contributions between 20 June and 10 July. Further, advisers might say that if a client wants to make a contribution for a financial year, it must be made before 20 June, thus leaving a 10-day window for payments to clear.
However, in spite of the above, there will always be clients who are “last-minute Larrys”. If a client delays acting until the danger zone of June 20 to June 30, I think advisers should issue very heavy disclaimers.
Accidentally triggering the bring forward rules is still disastrous
Once upon a time, triggering the “bring forward” rules was absolutely disastrous. For example, consider the following.
Johan intended to make $150,000 of non-concessional contributions in the 2008 financial year and then $450,000 in the 2009 financial year. He thought he had done just this. However, many months after the end of the 2009 financial year he receives a letter from the ATO that effectively alerts him that a $1000 insurance premium he paid in the 2008 financial year actually constituted a non-concessional contribution. This gave rise to an excess non-concessional contributions tax liability of over $70,000 and it was very hard to get out of this liability.
However both ATO policy and the law itself have been altered and so the above situation — which of course was absolutely disastrous — would not arise.
However, accidentally triggering the bring forward rules is still disastrous (although no longer absolutely disastrous). Consider the following.
Keith turned 64 in the 2016 financial year and will turn 65 in the 2017 financial year. He wants to maximise his non-concessional contributions in conjunction with a withdrawal and re-contribution strategy. He withdrew $180,000 from superannuation in the 2016 financial year and then re-contributed it. Now, he wants to withdraw $540,000 in the 2017 financial year and re-contribute it. However, it’s just been discovered that he paid a $1000 insurance premium in the 2016 financial year that actually constituted a non-concessional contribution.
If he now proceeds with the $540,000 withdrawal and re-contribution, it would no longer give rise to the $70,000+ tax liability. However, proceeding might cause Keith to have to withdraw $181,000 ($540,000 less $1000 less $180,000 less $540,000), plus 85 per cent of a deemed “associated earnings” amount.
The reason why this is disastrous is that people invariably want to implement these sorts of strategies in the lead up to turning 65 by using a withdrawal and re-contribution strategy, and then once the three-year period has refreshed itself (ie, the person can put the $181,000-plus back into super) the person is then over 65 and the gainful employment test might prohibit any further contributions. Effectively it means that accidentally triggering the bring forward rules causes someone to have to live out their retirement with $181,000-plus less in super.
Market value means market value at the point in time of the contribution
The ATO and the government have been very worried in the past about people manipulating off market transfers of listed securities to pick a date in the past that provides them with a lower capital gain outside of superannuation. A few years ago there was even a bill proposing to ban off market transfers to superannuation. Although the ban was never ultimately implemented, there is still a valid point: it’s simply not allowable to pick a past date for a transfer. The transfer is at the moment when fund obtains a properly executed off-market share transfer in registrable form. Members and trustees should not be trying to manipulate the market value by trying to choose a date in the past.
The contribution rules are a moving target. However, I’m reminded of the old saying from the French journalist Jean-Baptiste Alphonse Karr: the more things change, the more they remain the same (“plus ça change, plus c’est la même chose”). And I think the saying is very true in respect of the issues described in this article.
