Private ruling: Contributions
Published: February 2015
Ruling period: Year ending 30 June 2015.
Date scheme commenced: 1 July 2012.

Ruling: Q1: Is the amount that was incorrectly deposited into a term deposit in the name of the superannuation fund a contribution? | A1: No.

Relevant facts and circumstances: The superannuation fund is a self-managed super fund. The two directors of the corporate trustee (the Company) are also the members of the Fund. During the relevant income year, one of the directors deposited a cheque and instructed the bank to open a term deposit in the Company's name. A copy of the cheque and the Local Currency Transaction Form confirms the term deposit account was to be in the name of the Company. Instead, the bank opened a term deposit in the Fund's name. The directors were notified of this by the bank during the subsequent income year. For the period between the 20XX and 20YY income year the bank refused to acknowledge it was their error. The directors went to the Financial Ombudsman and eventually to the Managing Director of the bank to have the dispute resolved. In a letter dated during the 20YY income year, the bank acknowledged that due to an administrative error on their behalf, the amount was incorrectly deposited into an account created in the Fund's name. This letter also detailed a proposed resolution whereby the Fund was to return the initial deposit plus interest to the bank. The transfer was completed a few days after the letter. In the Fund's 20XX and 20YY financial accounts, the deposit plus any accrued interest was recorded as a fixed-interest investment asset with a corresponding liability equal to that amount in the form of an amount owing to the bank as a creditor. No interest income from the deposit has been recorded by the Fund. Details of the member's contributions demonstrate they are both within their caps for the relevant periods. The Fund was in pension mode for the entire relevant period.

Relevant legislative provisions: Income Tax Assessment Act 1997 Division 292. | Income Tax Assessment Act 1997 Section 292-1. | Superannuation Industry (Supervision) Regulations 1994 Regulation 1.03 | Superannuation Industry (Supervision) Regulations 1994 Regulation 6.17

Reasons for decision: Summary: The amount that was incorrectly deposited into a bank account created in the self-managed superannuation fund's name is not a contribution. Consequently, the withdrawal of this amount (plus accrued interest) is not subject to the cashing restrictions and therefore does not constitute a superannuation benefit payment. | Detailed Reasoning - Contribution: Division 292 of the Income Tax Assessment Act 1997 (ITAA 1997) contains legislative provisions relating to excess contributions tax and as stated in section 292-1: This Division limits the superannuation contributions made in a financial year for a person that receive concessionally taxed treatment. (emphasis added) To ensure the amount of concessionally taxed superannuation benefits that a person may receive, Division 292 of the ITAA 1997 also details, amongst other matters: • what constitutes a concessional and non-concessional contribution; • the limits (caps) for concessional and non-concessional contributions and the application of the bring-forward provision; • the liabilities for excess concessional contributions tax and excess non-concessional contributions tax when contributions exceed the caps. Though Division 292 of the ITAA 1997 makes reference to the term 'contribution', it should be noted that this term is not defined in Division 292 or elsewhere in the ITAA 1997. Regulation 1.03 of the Superannuation Industry (Supervision) Regulations 1994 (SISR 1994) define 'contribution' as including payments of shortfall amounts to the fund and payments from Superannuation Holding Account Special Accounts but excludes benefits that have been rolled over or transferred to the fund. Otherwise, 'contribution' has been given meaning in Taxation Ruling TR 2010/1 Income tax: superannuation contributions. Paragraph four details the Commissioner's view of the ordinary meaning of a contribution as being: anything of value that increases the capital of a superannuation fund provided by a person whose purpose is to benefit one or more particular members of the fund or all of the members in general. According to the facts, the term deposit account that was created in error in the Fund's name was recorded in the 20XX financial accounts as a fixed interest investment with a corresponding liability for an equal amount. Further, all interest earned on the term deposited was credited to the liability account as it accrued. Consequently, there has been no increase in the capital of the Fund as a result of the deposit. Similarities can also be drawn between this case and determination number D06-07/129 by the Superannuation Complaints Tribunal. In this determination, the Tribunal accepted that the rent moneys that were mistakenly paid to the superannuation fund, rather than the real estate agent, were not contributions under the Superannuation Industry (Supervision) Act 1993 (SISA 1993) and therefore the cashing restrictions in regulation 6.17 of the SISR 1994 did not apply. Further, they held that the rent money plus any interest were to be repaid to the original payer. It is important to note however that this determination has no application where the 'mistake' was that the contributor was mistaken as to the subsequent legal implications of the contribution. For example, the mistake was that the contributor only realised after the fact that they should not have made the contribution as it has exceeded the members' caps. There is nothing in the facts of this case to suggest that the mistake had anything to do with circumventing the contribution caps. This is due to the fact that had the amount been intended to be a contribution, it would still have been well within Member 2's 20ZZ non-concessional contributions cap as the bring-forward provision was available to them. The above, together with the fact that the deposit was never made with the intention or purpose of benefiting the members of the Fund, confirms that the amount incorrectly deposited by the bank is not a contribution. Finally, in line with determination D06-07/129 discussed above, as the term deposit made in error is not a contribution, the withdrawal of the deposit plus interest during the 20YY income year is not subject to the cashing restrictions and therefore does not constitute a superannuation benefit payment.