Personal use asset
The capital loss will be disregarded if the debt is a personal use asset (s 108-20(1)). A personal use asset is a debt arising other than:
• in the course of gaining or producing a taxpayer’s assessable income, or
• from carrying on a business (s 108-20(2)(d)).
The Commissioner has stated the view that where a director/shareholder is required to make a payment under a guarantee of a company’s debt, the resulting debt owing to the director/shareholder by the company is not a personal use asset if the objectively determined primary purpose of the guarantee payment was assisting the business so as to promote the future flow of dividends to the shareholder, provided the amount of expected dividends is not completely disproportionate to the amount of the liability under the guarantee (Taxation Ruling TR 96/23).
Where the guarantor is only a director of the company and not also a shareholder, the debt should not be a personal use asset if the objectively determined primary purpose of the guarantee payment was assisting the business so as to promote the future flow of director’s fees to the director, provided the amount of expected director’s fees is not completely disproportionate to the amount of the liability under the guarantee.
Timing of the capital loss
The capital loss will arise:
- if the guarantor enters into a contract for the release of the debt – at the time the contract is entered into
- if there is no contract at the time the debt is released (s 104-25(2)).
A capital loss will only arise at the time the debt arising under the indemnity is either released or the company is liquidated. As detailed above, this debt only arises where the guarantor actually makes a payment under the guarantee. [10-02-2012]
Q. The employer made the monthly superannuation guarantee contribution (SGC) for June in July (obviously after year-end), pre-28 July. The super fund has shown these July contributions as relating to the second year (July being in the new year), whereas the total SGC made was meant to relate to the year ended June (prior period). Can the contribution be attributed to the year ended June?
All legislative references are to the Superannuation Guarantee (Administration) Act 1992 (SGA) and the Income Tax Assessment Act 1997 (ITAA 1997) unless specified otherwise.
Receipt of contributions and SG obligations
TR 2010/1 explains when a contribution made is received by the fund. Under the Taxation Administration Act 1953 (TAA), superannuation providers must report information about contributions to the ATO in the circumstances stated in TAA Sch 1 Div 390, basically detailing contributions that have been made to the fund for the member during the year and reporting roll-overs of superannuation benefits to the fund.
In your case, any contribution made in July of a financial year will, therefore, be reported by the receiving fund as contributions made for that financial year. This is the case even though the “employer contributions were made … in respect of June (the prior month) and … so attributed to June …” for SG compliance purposes, as discussed below.
SG obligations – due date for contributions
To avoid incurring liability for the SG charge for a quarter, the required contributions may be paid to a complying superannuation fund or an RSA at any time during the quarter or by the 28th day after the end of the quarter. This is because, under the SGAA, a contribution to a superannuation fund by an employer may be taken into account as having been made in a quarter if it is in fact made within the period of 28 days after the end of the quarter (SGAA s 23(6)).
For example, a contribution made in July of a year (as in your case) would be “attributed” to the employer’s SG obligation for the quarter ending June of that year, so that the employer will not have an SG liability for the June quarter if contributions are made by 28 July. [31-01-2012]
Disclaimer
The date given in square brackets after each answer is the date on which the answer was sent out. The above information is based on CCH’s understanding of the law as at that date.
