Making SMSF contributions using a promissory note
It's possible to make superannuation contributions via both a cheque and promissory note.
For the contribution to be validly received by an SMSF there a few simple, but incredibly important conditions that must be met. Tax Ruling 2010/1 covers the use of promissory notes for contributions received by a superannuation fund.
The following summarises the ways in which funds are typically transferred and when the contribution is made:
If the funds are transferred by:
- A related party (as maker) issuing a promissory note, payable on demand at face value, to the superannuation provider and the note is paid with cash or its electronic equivalent
A contribution is made when:
- The promissory note is received, so long as payment is demanded promptly and the note is honoured.
For more details please view the following Intello Insights article: Promissory Note for SMSF Contributions
SMSF pension benefits paid using a promissory note
It's possible to make a pension payment via both a cheque and promissory note.
For the pension payment to be recorded as paid in the accounts of the SMSF there are some important conditions that must be adhered to. SMSF Determination SMSFD2011/1 covers the use of promissory notes for pension payments made from an SMSF to a member.
Question: Is a pension benefit paid via a cheque or promissory note "cashed" at the time the cheque or note is received by the member or beneficiary?
Yes, provided that:
• at that time, money is payable immediately and available for payment;
• the trustee takes all reasonable steps to ensure that the money is paid promptly;
• the money is paid; and
• the requirements of the Superannuation Industry (Supervision) Regulations 1994 (SISR)1 are otherwise satisfied.
For further information, on the specific terms and conditions that must be met, visit the following Help Centre article: SMSFD 2011/1 - Benefit payable with a cheque or promissory note
Notes re promissory note template
- Please note the above template should NOT be used without first seeking specialist advice from an SMSF administrator, accountant or auditor.
- The template used has the example of a member making a contribution to an SMSF. To use the template for a pension payment via a promissory note, the parties to the note would need to be reversed.