Contributions made late in a financial year can be a complex animal at times.
Take the following question that was asked of me recently.
A self-employed trustee of an SMSF writes a cheque from their personal bank account on 25 June 2014 made out to their SMSF. The trustee holds onto the cheque until 2 July 2014 when they take it to the bank. The proceeds appear in the SMSF bank account on 9 July 2014.
For the purposes of claiming these contributions as a tax deduction:
a) Is the contribution to the SMSF deemed to be in the 13/14 financial year when the trustee received the cheque (from himself)?
OR
b) Is the contribution deemed to have occurred when the cheque was presented to the bank in the 14/15 financial year?”
This is a remarkably common problem. Just by way of background – 25 June was a Wednesday, 30 June was a Monday, which means 2 July was the Wednesday, or five working days after the cheque was presented to the super fund.
A question of when
The major problem here is the desire to claim the contribution as a tax deduction in the 2013/14 financial year.
The Tax Office has dealt with this issue in a number of different ways. In Tax Ruling 2010/1, the Tax Office says that a super contribution made by cheque is deemed to have been made when it’s received by the super fund, as long as it isn’t dishonoured. (A dishonoured cheque simply means that no contribution has been made).
However, the Tax Office also says that a contribution is deemed to be made using a personal cheque (as is the case in this example) when it’s received by the fund, promptly presented and isn’t dishonoured. There is an additional caveat that the cheque mustn’t be post-dated (that is, the proceeds will leave the contributors bank account at some future time).
Be prompt
In my view, the main problem is the time it has taken to present the cheque. Given the proximity of 30 June, promptness is vital. The Tax Office says in TR 2010/1 that when a personal cheque isn’t presented promptly, then it will treat the contribution as having been made once the super fund has received cleared funds. In this case, that would mean the 2014/15 financial year.
So what is meant by promptly? In the ATO’s view, it means subject to extenuating circumstances, “within a few business days consistent with prudent business practise” (my emphasis). The word ‘few’ means more than two days and less than an indeterminate small number of days.
Given the proximity to 30 June and the desire to claim the contribution as a tax deduction, why did it take the trustee five working days to present the cheque to their bank?
Unless there was some business or personal problem that stopped the trustee from visiting a bank branch, then I take the view that five days was probably too long. No business likes waiting for their money longer than is necessary, so most bank cheques the day they receive them.
Based on what we know, I think the contribution was made in the 2014/15 financial year.
If the cheque had been presented on or before 30 June, then you would want proof of this (such as the bank stamped deposit slip) so we can count the contribution in the 13/14 year.
Important: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. Consider the appropriateness of the information in regards to your circumstances.
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