Private ruling: superannuation contribution
Published: February 2013
Ruling period: Year ending 30 June 2013
Date scheme commenced: 1 July 2012

Ruling: Q1: 1. Is the withdrawal from the superannuation fund, processed after it was cancelled by the Member, the payment of a superannuation benefit? 2. Is the reversal of the above transaction a contribution to the superannuation fund? | A1: 1. No. 2. No.

Relevant facts and circumstances: The superannuation fund (the Fund) is a self managed superannuation fund (SMSF). On a particular day in late 2012 a member of the Fund (the Member) telephoned his financial adviser (the Adviser) to request a payment (the Amount) from the SMSF's cash management account to the Member's personal bank account. You stated it is ordinary practice for the Adviser's office to be the first point of contact for client requests such as this, prior to passing any instructions onto their client contact centre to have the transaction processed. The payment was to be made from the Member's SMSF as a superannuation pension payment from the Member's account based pension. These funds would have enabled the Member to provide assistance to a particular entity (the Company) which was experiencing some financial difficulties. The Company is a family owned company in the manufacturing and packaging industry. The factory (out of which the business operates) was severely damaged and was shut down as a result. The Member telephoned the Adviser and stated he no longer required the payment of the Amount as the Company's business operations had stopped. The Member also informed the Adviser that he wanted the Amount to remain in the SMSF effectively revoking the earlier withdrawal request made,, which at that time had not been processed. The Adviser acknowledged this instruction from the Member and documented that conversation. However, the revoked withdrawal form was inadvertently forwarded to the relevant client contact centre and processed. The error was later identified and the transaction was reversed. The Member received a letter from the Adviser's office informing the transaction had been processed in error and that it had been subsequently reversed. A copy of that letter together with the relevant transaction report confirmed the above error and subsequent reversal of the transaction. The letter acknowledged: · that the error made to transfer the Amount was without instruction from either the Member or the Trustee of the Fund · that once the error was detected, the transaction was reversed without the need for the Trustee to provide instructions · the Regulations governing electronic transactions contemplate the prompt rectification of handling errors such as has occurred in this instance · acknowledgement that appropriate action had been taken to put the Fund back into the same position as if the error had not occurred. A cheque for the amount of the withdrawal request (the Amount) was not sent to the Member as all transactions were electronic.

Relevant legislative provisions: Income Tax Assessment Act 1997

Reasons for decision: Summary: Taxation Ruling 2010/1 Income tax: superannuation contributions (TR 2010/1) sets out the Commissioner's view on what would constitute 'contributions' to a superannuation fund. It explains the Commissioner's view as to the ordinary meaning of the word 'contribution' in so far as 'contribution' is used in relation to a superannuation fund, approved deposit fund or retirement savings account in the Income Tax Assessment Act 1997. TR 2010/1 also considers the ordinary meaning of contribution, how a contribution can be made and when a contribution is made. In paragraphs 4 and 6 to 8 the Commissioner states: 4. In the superannuation context, a contribution is 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. … 6. Not every increase in the capital of a fund is a superannuation contribution as a person who increases a fund's capital must have the purpose of benefiting one or more particular members of the fund or all of the members in general. 7. A person's purpose is the object which they have in view or in mind. Generally, a person will be said to intend the natural and probable consequences of their acts and likewise their purpose may be inferred from their acts. This is a determination of a person's objective purpose, not their subjective intention. 8. A person will not normally have a purpose of benefiting a member of the fund if the transaction they carry out is in no way dependent upon the identity of the other party as a superannuation provider or they are simply fulfilling the terms of a contract or arrangement entered into on a commercial or arm's length basis. An objective determination of a person's purpose may in some cases lead to the conclusion that the person's purpose is to benefit one or more particular members of the fund or all of the members in general. This may occur when a transaction or arrangement: · is entered into because of a connection or relationship between the person and the superannuation provider or · cannot be explained by reference to commercial or arm's length dealings. In general terms, the Commissioner considers that the matter of whether an amount is a superannuation contribution is determined by having regard to whether a superannuation provider is given something of value and whether what is given is given for a particular purpose. From the above it is clear that the Commissioner considers that a contribution is 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. From the facts of the case, it is evident the transaction transferring the Amount from the SMSF cash management account to the Member's personal bank account occurred in error. The Member had informed the Adviser that the Amount was to remain in the SMSF effectively revoking the earlier withdrawal request which at that time had not been processed. The Adviser had acknowledged and documented the Member's instructions. However, the revoked withdrawal form was forwarded to the relevant client contact centre in error after receiving the Member's instructions to revoke the withdrawal request and processed. When the error was identified, the transaction was immediately reversed and the Member received a letter from the Adviser's office (the letter) confirming this rectification. This is supported by relevant documentation which outlined the withdrawal transaction had been an error and was without instruction from either the Member or the Trustee of the Fund. Further, once the error was detected, the transaction was reversed without the need for the Trustee to provide instructions as the Regulations governing electronic transactions contemplate the prompt rectification of handling errors such as has occurred in this instance. The Member was advised the appropriate action had been taken to put the Fund back into the same position as if the error had not occurred. Therefore, on the basis of the information provided the Amount does not constitute a superannuation benefit and a superannuation contribution in accordance with the Commissioner's view expressed in TR 2010/1.

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