Generally, a contribution to an self-managed superannuation fund (or SMSF) is tax deductible when it has been received by the SMSF BEFORE the 30th June and is acknowledged in writing by the fund Trustees that they have received a Notice of Intent from the payer that they wish to claim the contribution as a tax deduction.
Contributions can be paid in cash, cheque – personal, business or bank, money order or electronic transfer.
However, the timing of when the contributions have been received by the SMSF is critical to the tax deductibility.
A contribution is made when the cash is received by the SMSF; when the money order, bank or other cheques are received by the SMSF unless it has been dishonoured); when the funds are credited to the SMSFs account via the electronic transfer.
What should be noted is that when a contribution is being paid by way of a cheque, the contribution is “deemed” to be made when the contribution is received by the trustees of the fund, provided the intention is to present the cheque for payment in a timely manner. However, where a member pays a contribution by way of electronic transfer, the contribution is counted as being made when the contribution hits the SMSF’s bank account.
So, when a member of a SMSF writes a cheque on 28 June, and it is not deposited in the SMSFs bank account until 1 July, the contribution will be treated as having been made in June, providing the cheque is in the hands of the trustees before midnight on 30 June.
In the case of electronic transfers, there is a danger of missing out on a tax deduction if the contributions are transferred on the 30th June but don’t make it to the SMSFs account until after 1 July.
Now a possible solution to solving the problem of no cheque books, cash deposits and electronic transfers being received by the SMSF BEFORE the 30th June at year end is the use of a Promissory Note.
A Promissory Note is a financial instrument that contains a written promise by one party (the note’s issuer or payer) to pay another party (the note’s payee) a definite sum of money, either on demand or at a specified future date.
In this case, the issuer is the person or entity that wants to make and claim the tax deduction for the superannuation contribution and the payee is the SMSF.
As long as the Promissory Note has been correctly prepared and signed, a contribution for tax purposes is made when the Promissory Note is received and payment is demanded promptly by the SMSF and the note is honoured by the payer.
We recommend that the contribution be made by supplying the SMSF with a Promissory Note dated no later than 30 June and honoured in the first week of July.
However, we don’t recommend making superannuation contributions at the last minute. They should always be well planner as part of your annual tax planning meeting in April and done at least a week before the 30th June to allow sufficient time for clearing and appearing in your SMSFs bank account.
Make sure you seek professional advice from experts in taxation and superannuation BEFORE you consider doing anything regarding financial decisions like this.
Have a great day!
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