Anthony Cullen, senior SMSF educator for Accurium, said in a webinar on ATO compliance updates that the cap it will count towards will be determined by the circumstances.
“There are a couple of things you need to think about here as well, such as who’s provided that service? Who’s done the value shift or the improvement? There are rules [that state] that if a superannuation fund receives a contribution on behalf of a member from another entity, it is a concessional [contribution]. It’s a taxable contribution to the fund,” Cullen said.
“Therefore, it is going to count towards your concessional cap. There are some exceptions. Obviously, members can make contributions on their own behalf. You can make contributions on behalf of your spouse. You can make contributions on behalf of your minor child. That will all potentially be non-concessional contributions.”
However, he said, if it’s a family trust that’s done the improvement, and the contribution is being deemed to have come from the family trust, it’s either going to be an employer contribution, which is potentially unlikely because the member is not employed by the trust, or it’s going to be an assessable contribution to the fund.
“It’s going to count towards the member’s concessional contribution cap,” he added.
“But if it’s the member personally, and the contribution is coming from them, then they still get to choose whether they want to claim it as a deduction and go down the section 291.70 path or is it going to be non-concessional? However, any other party other than the member’s spouse or the member, then it’s going to be concessional.”
Staying on property related matters, Cullen explained the nuances that can occur if a related party tenant prepays rent to an SMSF and the NALI implications that may occur.
“This does raise an interesting question. It’s not necessarily going to be a NALI issue, but it may create other issues,” he said.
“In terms of sole purpose, does it create other issues? Generally, prepayment from a related party is all about that other party getting that early tax deduction and the question has to be asked as to why they are doing that? What benefit is it to the super fund? There’s no benefit to the super fund unless the fund needs this money because it wants to pay its borrowing back, it needs to conduct some work, or it wants to do further investment.”
Moreover, he said, this scenario would create greater cash flow into the super fund, so it is not uncommercial for there to be prepaid rent.
“The ATO addresses that, in terms of up to 12 months generally, it is going to be okay, but you do need to look at the driving force behind it,” he said.
“It’s a benefit for the other entity. What benefit is a super fund getting out of it? So not necessarily a NALI issue, but there might be other issues that you need to think about.”
