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I am auditing a SMSF with a member being the principal of an accounting practice which is trading as a discretionnary trust. The principal does not draw any wages but instead elect to get distribution instead. There is on record a work test declaration.
This principal can put in personal contribution and claim deduction under s.290-170. However, the practice/trust has been making the contribution treating it as employer contribution. Either way, the net result is the same for tax purposes.
For compliance, does the pricipal satisfy the extended definition of an employee for super purposes? I compare this situtation to that of a director of a company being regarded as a statutory employee for SG purposes, regardless whether a salary is drawn.
Can I have your opinion please.
Hi Stephen
ATO case study QC 48668 gives guidance on this topic re the issue of if meet the definition of being gainfully employed.
It states:
"If Charlie's work leads to increased turnover for the business, resulting in larger trust distributions or a disproportionate increase in dividends, the Commissioner could take a view that the arrangement under which Charlie was ‘gainfully employed’ has not ‘come to an end’ as he is still receiving 'gain or reward' from distributions from the Crackle Discretionary Trust."
That is the above supports that a trust distribution could be held to be "gain or reward" where a person is in effect employed by the Trust.
If this does not answer your question please let me know.
Thanks
SMSF AAA