Super Fund & Employer Sponsor Transactions must be separate

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A common practice within the superannuation industry to save on transaction costs and time is for a contributing employer to make member payment for certain fund expenses.

Recent discussions between industry representatives and the Australian Taxation Office (ATO) have identified the possibility that the act of treating superannuation fund expenses paid by the employer sponsor as contributions to a superannuation fund might not comply with the SIS Act (1993). This required that the trustees of the superannuation fund keep the assets and money of the fund separate from the personal assets, businesses assets and money of the trustees and employer sponsor.

The employer sponsor and the self-managed superannuation fund (SMSF) are two separate entities and should be treated as such. A SMSF and employer sponsor must keep their money and assets separate and use separate accounts and cheque books.

What does the ATO say?

The ATO interprets the legislation literally, that is 'a deduction is only allowable where a tax payer makes a contribution to the fund' and not where a constructive contribution is made by way of paying expenses on behalf of the superannuation fund.

The ATO have indicated that they will not actively target this practice, but where this issue is identified in the course of an unrelated audit, the tax officers involved will enforce the legislation.

Recommendation

In the light of the above discussion, all superannuation fund expenses must be paid by the superannuation fund directly. They should be paid to the fund prior to paying expenses to ensure a separation of fund and non-fund activities and the deductibility of contributions.

This issue will likely be the subject of a discussion paper and the ATO have agreed to consult with the superannuation industry to determine a final ruling.