“This issue first became one of prominence in 2005–06 when the government announced the introduction of contribution caps and provided a one-off $1 million cap introduced on federal budget night,” Mr Miller said.

For the 2005–06 financial year, Mr Miller said the ATO audited all funds who contributed greater than $1 million to determine when the contributions were made. In the instances of OMTs, they requested copies of the transfer form and the holding statements.

The ATO then formalised its views in TR 2010/1. The Tax Commissioner stated in TR 2010/1 that the fund’s capital will be increased when a person transfers an asset to the superannuation provider but the provider pays no consideration or pays consideration less than the market value of the asset.

An example was included of a person transferring shares they own in a stock exchange listed company to a superannuation provider to make a superannuation contribution.

“A contribution by way of a transfer of an asset will be made when the superannuation provider obtains ownership of the asset from the contributor,” the tax ruling states.

“The commissioner accepts the superannuation provider obtains ownership of an asset when beneficial ownership of the asset is acquired and that beneficial ownership can be acquired earlier than legal ownership.”

Mr Miller said it is clear from the ruling that the ATO provides for the contribution to be made when beneficial ownership changes hand.

Beneficial ownership is defined as a superannuation provider acquiring shares or units in an Australian stock exchange listed company or unit trust when the provider obtains a properly executed off-market share transfer in registrable form.

The ATO also states that a contributor or superannuation provider who seeks to argue a contribution of property occurs when beneficial, not legal, ownership of property passes must retain sufficient evidence of the relevant transactions and events to precisely identify when the change of beneficial ownership occurs.

“If we take the OMT process from TR 2010/1 and apply the principle to the NALE rules, then we create an issue if the consideration for the shares is completed on a date and the form is executed on a later date and the share value has subsequently increased,” Mr Miller cautioned.

The draft LCR, he noted, implies that the difference between the consideration on the contract (OMT) and the price on the execution date are different and as such the fund has paid less than expected.

“Even though the fund treats the difference as an increase in the contribution, meeting all the SIS requirements and the contribution definition, it falls foul of the NALE provisions, potentially resulting in future income of the investment being taxed higher,” he warned.

“Herein lies the trustee remuneration, contribution and non-arm’s length income conundrum. By applying practices that many have used for over a decade, that are otherwise insignificant because the end result is SIS compliance, we now may be creating a tax issue, and that for many is not the intention of this law.”

Mr Miller noted that the law at its core was designed to stop trustees from benefiting from untoward or uncommercial transactions without consequences.

“There is no doubt that certain expenses, such as interest on related-party LRBAs, should reflect commercial rates. Similarly, most would accept that building and labour contracts should reflect commercial terms, but when we start questioning administrative practices that at most represent 0.5 [of a percentage point] of fund assets, or tampering with contributions rules that largely work, are we reaching for outcomes that aren’t there?” he questioned.