Administration, Compliance, Contributions

Active member contributions broader

Active member test Contribution Rollover

Trustees and practitioners must be aware the definition of contribution for the purpose of the active member test is broader than in other circumstances.

When assessing whether an SMSF satisfies the active member test enabling it to meet the definition of an Australian superannuation fund, advisers and trustees must take into account the broader definition of ‘contributor’ used for this purpose, a technical specialist has suggested.

Specifically, Accurium head of education Mark Ellem acknowledged an individual is an active member of a superannuation fund at a particular time if the person is a contributor to the fund at that time or is someone on whose behalf contributions have been made.

However, Ellem pointed out there is no definition of contribution for the purposes of the active member test.

“Tax Ruling (TR) 2008/9 says let’s go look at the other parts of the [Income Tax Assessment Act 1997] where it refers to contributions and let’s consider the context in which the term contribution is used in those parts,” he noted.

TR 2008/9 provides a list of what is considered a contribution, such as direct cash payments made by an employer or an individual to the fund, and an in-specie asset transfer by an employer or an individual.

“The interesting one [on the list] is the rollover of a super benefit [because] you wouldn’t necessarily think that [to be] a contribution,” Ellem observed.

According to Ellem, super benefit rollovers are included because they increase the capital of the SMSF.

“So when we’re thinking of this active member test, it’s not just about contributions coming in from the member or contributions made on the member’s behalf by the employer, but also if we roll over anything into the fund,” he said.

“I’ve seen this [error made] in the past [where it has been decided] the member made no contributions, the employer has made no contributions, [we don’t have] an active member.

“But a rollover came in and that makes them a contributor.”

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