Contributions to a funded defined benefit fund
Special rules apply to work out the amount of your concessional contributions in a funded defined benefit fund.
Your concessional contributions include your notional taxed contributions.
Notional taxed contributions
In a defined benefit fund, your employer usually contributes to the fund in general (rather than specifically for you). This is known as a notional taxed contribution.
Notional taxed contributions are calculated using a formula specified in the legislation which generally represents the equivalent employer contributions your employer would make if you were a member of an accumulation fund.
Special rules (grandfathering) of notional taxed contributions
It can be difficult for you to adjust your notional taxed contributions if you are a member of a defined benefit scheme.
This could mean you are liable for excess contributions tax even though you can't choose to reduce your notional taxed contributions. Therefore, special rules (grandfathering) may apply if you were a member of a defined benefit fund on 5 September 2006 (the day the original contribution caps were first announced) or 12 May 2009 (the reduction in the concessional contribution caps).
If your notional taxed contributions in a financial year exceed your concessional contributions cap and you qualify for the grandfathering provisions, your fund will treat your notional taxed contributions as being equal to your concessional contributions cap.
Your fund is responsible for determining if you are eligible for grandfathering.
These grandfathering provisions don't apply to other employer contributions made to your defined benefit fund or to other funds you have.
Grace is 40 years old, so her concessional contributions cap is $25,000 for the 2009-10 financial year. Grace also salary sacrifices $12,000 to her defined benefit super fund.
Grace's fund determines she is eligible for the grandfathering of her notional taxed contributions as she was a member of a defined benefit fund on 12 May 2009 and met the grandfathering provisions.
The fund works out that Grace's notional taxed contributions for the financial year are $35,000. As this is more than Grace's concessional contributions cap, the fund treats her notional taxed contributions as being the amount of her concessional contributions cap – $25,000.
The salary sacrificed contributions are actual employer contributions, not notional taxed contributions. They are not subject to the grandfathering provisions.
The fund reports $37,000 concessional contributions for Grace – $25,000 grandfathered notional taxed contributions and $12,000 salary sacrifice contributions.
End of example
Eligibility for grandfathering
To be eligible for grandfathering, you must have:
- for the 2007–08 and 2008–09 financial years – been a member of an eligible defined benefit fund on 5 September 2006 (the day the original contribution caps were first announced)
- for the 2009–10 financial year onwards – been a member of an eligible defined benefit fund on 12 May 2009 (the reduction in the concessional contribution caps)
- not had a substantial change to the rules that apply to your benefit since that date
- not had a non-arm's length change to your super salary of more than 50% in a year or 75% in three years since that date
- notional taxed contributions in a financial year in excess of the concessional contributions cap
- met other conditions specified in the regulations.
The grandfathering arrangement may not apply if your fund makes changes to its benefit rules. However, certain minor changes may still allow the grandfathering arrangement to continue.
If you transfer from a defined benefit fund to another defined benefit fund, and continue to meet the requirements, you may still be entitled to the grandfathering arrangement in the new fund (for example, where the funds provide equivalent rights to members).
Given the level of detail contained in the regulations, the information above only provides general guidance.
The grandfathering provisions don't apply to a super interest in a constitutionally protected fund.