December is not usually a time when many of us in the superannuation industry worry an awful lot about the exact timing of a contribution. But last December, the ATO was thinking about it.
Many of us get agitated about it in June because the financial year in which
the contribution is deemed to have occurred affects several particularly
important things including:
- When it is tax deductible to the contributor (if applicable),
- When it counts for the purposes of the contribution caps, and
- When it is considered to have been made for Superannuation Guarantee purposes (if applicable).
Unfortunately, different rules apply for different purposes and the all important cut off date can therefore be confusing.
This is particularly so when the contribution is paid to a superannuation fund via a clearing house – is the date it arrives at the clearing house important? Or is it the day the clearing house eventually gives the money to the superannuation fund?
Last month, the ATO released a draft Practical Compliance Guideline (PCG 2019/D8) which makes a small but significant change here for employers using the Small Business Superannuation Clearing House (SBSHC). The SBSCH is an approved clearing house administered by the ATO at no cost for small employers.
Specific rules in the Superannuation Guarantee legislation give this clearing house special status: contributions to the SBSCH are deemed to have been made for Superannuation Guarantee purposes as soon as they arrive at the clearing house rather than when they arrive in the superannuation fund (which can be several days later).
As this only applies to the SBSCH (not all clearing houses) businesses too large to use the SBSCH (or who have chosen not to) are not eligible for this special concession. In their case, the contribution is not deemed to have been made for Superannuation Guarantee purposes until actually received by the fund.
This has always been the case.
What has historically been a poorly understood issue for users of the SBSCH
is that even though contributions that arrive at the SBSCB on (say) 30 June
2019 might sneak in to the 2018/19 financial year for SG purposes, they won’t
be physically paid across from the SBSCH to the superannuation fund until a few
days later (July 2019). As a result, the contributions:
- Will be counted against the 2019/20 contribution caps (rather than 2018/19), and
- Won’t be tax deductible to the contributor in 2018/19 – the deduction will also have to wait until 2019/20.
For 2018/19, any employer using the SBSCH who wanted the contributions to have actually landed in the relevant superannuation fund before 30 June 2019 needed to have made the contribution nearly a week earlier (24 June 2019). Naturally this caught a great many employers out – those who made their contributions in the final few days of June 2019 discovered that they could not claim a tax deduction for them in 2018/19 because they didn’t arrive in the receiving fund early enough.
PCG 2019/D8 does not change the law here. But what it does say is that the
ATO will “not apply compliance resources” (aka “look the other way”) to
- A contribution is paid to the SBSCH on or before 30 June,
- At the time the contribution is made, all the relevant information required is given to the SBSCH so that it could pass the contribution on to the fund, and
- The payment is not dishonoured or returned
allowing the employer to claim a tax deduction at the time rather than in the following year. For example, an employer could claim a deduction for contributions received by the SBSCH on 30 June 2020 in 2019/20 rather than 2020/21, even though those contributions won’t be received by the relevant superannuation fund until July 2020.
This aligns the treatment for Superannuation Guarantee and tax deductibility. It makes no change to the treatment for contribution cap purposes – these contributions would still count towards the member’s contribution cap in 2020/21 rather than 2019/20.
The PCG only proposes to change the treatment for the SBSCH, not all clearing houses so many employers still need to focus on getting the contributions to their clearing houses much earlier than 30 June each year.
If finalised in its current form, the PCG will apply retrospectively - this will certainly bring a lot of relief to many small employers who missed the very early 24 June 2019 deadline this year.
Having said that, I have often wondered how many employers using clearing houses (SBSCH or commercial) are even aware of the ATO’s views on timing here! I would be prepared to bet that most employers claimed a deduction in 2018/19 for contributions made in June 2019 as long as the money had left their bank account by that time. And in fact, how would they even know when the superannuation funds received the money? At best they could ask the clearing house when the money was passed on but how on earth would they know when the cash physically arrived with each superannuation fund for each employee?
We’ll be suggesting the ATO adopts the same approach for commercial clearing houses as we suspect there is something of a losing battle being fought here in any case!