Sean Johnston
SMSF Specialist
With 30 June 2024 falling on a Sunday, a number of contributions made late in the financial year failed to make it into the fund’s bank account until after 1 July. What happens now?
Naturally, this raises a few questions from concerned trustees and advisors.
Does this count as a contribution in the 2023/24 financial year?
The short answer is generally no, this will count as a contribution in 2024/25.
The ATO has written a relatively comprehensive guide, Tax Ruling 2010/1, which amongst other things, gives guidance on when a contribution is considered to be made.
For bank transfers, the contribution is considered made when the funds are actually available for use by the SMSF. Normally, this translates to the date on which they are formally credited to the SMSFs bank account. A transaction made over a weekend (particularly where two different banks are involved) is often not reflected in the recipient’s bank account until the following business day even if it’s shown as “leaving” the payer’s account on the day the transaction was created via online banking systems.
It’s generally only possible to argue an earlier date if the recipient (the SMSF in this case) can prove the funds were actually available for use on 30 June. For example, can the trustee provide a screen shot of the fund’s online banking records showing those amounts available for use? Or a letter from the bank that confirms this? If so, it will be possible to treat the contribution as occurring in 2023/24.
But unfortunately, for the vast majority of cases it’s not possible.
For affected people this means the contributions will be applied against their 2024/25 contribution caps. For people who were relying on being able to use their 2024/25 contribution caps this could be disastrous.
Is there anything you can do?
Do you need to do anything? Is there any reason, or benefit gained by having the contribution recorded in 2023/24 as opposed to 2024/25?
If there is no difference in the result, then you really don’t need to worry about what year the contribution falls into.
In these cases, there’s really no reason to do anything more.
What about where there is an impact, can anything be done?
In limited circumstances yes, but for most people the answer will be no.
The ATO does have provision for people to apply to the Commissioner to exercise their discretion to either overlook the contribution or to allocate the contribution to another financial year.
There is a guide available (PSLA 2008/1), which discusses what the Commissioner will consider when assessing an application to exercise their discretion. There are two primary concerns of the Commissioner:
- What, if any, special circumstances impacted the timing of the contribution
- Whether the Commissioner exercising their discretion would be consistent the objectives of the Tax Act
Special circumstances are hard to define, and must be assessed on a case-by-case basis but the guide does outline a few things are usually not considered special circumstances:
- The financial consequences of the transaction
- Not knowing or understanding the law
- Receiving incorrect advice
- Not leaving adequate time for transfers/not expecting delays in online banking
- Not understanding payment patterns of your employer
Remember, special circumstances are not the only limb of the test. The Commissioner also has to satisfy themselves that their discretion would be consistent with the objectives of the tax laws.
Again, this concept is a little esoteric and hard to define but what needs to be considered is whether the discretion would provide for something that is fundamentally contradictory to the tax law. For example, if the discretion would allow an individual to unjustly skirt around the contribution caps, it’s unlikely to be granted.
Where the Commissioner does not exercise their discretion, the contribution will be allocated to 2024/25. If this creates an excess contribution issue this can be dealt with via the standard process for the type of excess contribution involved.
We have written a summary of the excess processes here but would strongly suggest you get in touch with your SMSF accountant to work through this process.
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