Taxpayer Alert TA 2008/12: Non-cash contributions to superannuation funds
Date of issue: 13 June 2008
Status: Current


Description: The Alert applies to arrangements which have one or more of the following features: 1. A person makes an in specie contribution to the fund and the fund does not recognise and record the contribution at the true market value of the asset in its accounts. 2. A person (e.g. an employer of members of the fund) pays expenses on behalf of the fund and does not subsequently seek reimbursement from the fund. Alternatively, the fund pays the expense but seeks reimbursement from another person (e.g. an employer of members of the fund). 3. A person, usually a member of the fund or their associate, makes improvements to an asset of the fund to increase the asset's value without seeking reimbursement from the fund. For example, the fund owns real property and a member pays the cost of improvements to that property. 4. A person, usually a member of the fund or their associate, together with the trustee of the fund owns all of the units in a non-leveraged unit trust or shares in a company and further units or shares are issued or the rights attached to the units or shares are altered so that the value of the units or shares owned by the fund is increased. | 1. A person makes an in specie contribution to the fund and the fund does not recognise and record the contribution at the true market value of the asset in its accounts. 2. A person (e.g. an employer of members of the fund) pays expenses on behalf of the fund and does not subsequently seek reimbursement from the fund. Alternatively, the fund pays the expense but seeks reimbursement from another person (e.g. an employer of members of the fund). 3. A person, usually a member of the fund or their associate, makes improvements to an asset of the fund to increase the asset's value without seeking reimbursement from the fund. For example, the fund owns real property and a member pays the cost of improvements to that property. 4. A person, usually a member of the fund or their associate, together with the trustee of the fund owns all of the units in a non-leveraged unit trust or shares in a company and further units or shares are issued or the rights attached to the units or shares are altered so that the value of the units or shares owned by the fund is increased. | FEATURES WHICH CONCERN US | The Tax Office considers that arrangements which exhibit one or more of the features outlined above may give rise to taxation and superannuation regulatory issues, including whether: 1. the trustee of the fund has properly recognised that the arrangement involves a contribution to the fund that must be allocated to a member and reported for the purposes of the excess contributions taxes under Division 292 of the Income Tax Assessment Act 1997 (ITAA 1997) at its market value; 2. the contributor is subject to the correct amount of tax (whether that is as a result of the application of the ordinary income, trading stock or capital gains tax provisions of the ITAA 1997) when an asset is contributed to the fund; 3. the general value shifting regime in Division 725 of the ITAA 1997 applies when rights in respect of particular investments by the fund are varied and value shifting occurs; and 4. the exclusion of superannuation contributions from fringe benefits tax properly applies if the contribution is for the benefit of an employee. | 1. the trustee of the fund has properly recognised that the arrangement involves a contribution to the fund that must be allocated to a member and reported for the purposes of the excess contributions taxes under Division 292 of the Income Tax Assessment Act 1997 (ITAA 1997) at its market value; 2. the contributor is subject to the correct amount of tax (whether that is as a result of the application of the ordinary income, trading stock or capital gains tax provisions of the ITAA 1997) when an asset is contributed to the fund; 3. the general value shifting regime in Division 725 of the ITAA 1997 applies when rights in respect of particular investments by the fund are varied and value shifting occurs; and 4. the exclusion of superannuation contributions from fringe benefits tax properly applies if the contribution is for the benefit of an employee. | Trustees are also reminded that when assets other than cash are transferred to a superannuation fund they must take any steps necessary to ensure the fund's ownership of the assets is recognised. Trustees should also ensure that they have not breached the regulatory provisions of the Superannuation Industry (Supervision) Act 1993 (the SIS Act). | Trustees should also note that some of these arrangements may subsequently lead to the derivation of non-arm's length income under Division 295 of the ITAA 1997. | The Tax Office is examining these arrangements and will issue further guidance about the above issues. The Tax Office will also work with auditors of self-managed superannuation funds to determine the circumstances when these arrangements may result in breaches of the regulatory provisions of the SIS Act that must be reported to the Tax Office . | Date of Issue: 13 June 2008 | Date of Effect: 13 June 2008 | Related Practice Statements: PS LA 2005/13 - Taxpayer Alerts | Subject References: self-managed superannuation fund superannuation contribution in specie contribution capital gains tax fringe benefits tax general value shifting regime non-arm's length income | Legislative References: Income Tax Assessment Act 1997 Div 292 Div 295 Div 725 Superannuation Industry (Supervision) Act 1993 | Contact Officer: Stuart Forsyth Business Line: Superannuation Phone: (07) 3149 5504





Related documents: TR 2010/1 | PS LA 2005/13 - Taxpayer Alerts | Div 292 | Div 295 | Div 725 | Superannuation Industry (Supervision) Act 1993

This Taxpayer Alert is concerned with arrangements that have features which are designed to allow a member of a superannuation fund to circumvent the new superannuation contributions limits that came into effect from 1 July 2007. The arrangements will mainly involve self-managed superannuation funds, but need not be limited to them.