Be Careful with Deemed Contributions

Be Careful with Deemed Contributions

If a fund increases in value for any non-investment related activity the increase will be a deemed contribution. Most commonly this occurs when an expense is paid on behalf of the fund without reimbursement. Where the action can be attributed directly to a member or their spouse it is a non-concessional contribution by default but the member can elect for it to be a concessional contribution, subject to eligibility, if they wish.

A problem may arise where the deemed contribution is sourced from an entity or individual other than the member or spouse. Such contributions will count towards the concessional caps of the member to which they are allocated and, though there can be discretion as to which member’s account is credited, there may still be unfortunate consequences.

A particular area of concern is the in-specie contribution of business real property. If the property is not held in the name of the member or spouse, commonly the title is held in an associated trust, then the contribution will be concessional and subject to contributions tax.