• 4. Modifications

    4.1 Defined benefit interests

    4.2 State higher level office holders

    4.3 Commonwealth justices and judges

    4.4 Temporary residents who depart Australia.

    There are modifications to the calculation of the low-tax contributions for:

    • defined benefit interests
    • State high level office holders
    • Commonwealth justices and judges.

    There is also a modification to how temporary residents who depart Australia are treated because they may be entitled to a refund of any payment made in respect of Division 293 tax obligations.

    4.1 Defined benefit interests

    Subdivision 293-D modifies the meaning of low-tax contributions for people who have a defined benefit interest (or interests) in an income year.

    Special rules – Low-tax contributions

    Where a person has a defined benefit interest (or interests), the low-tax contributions for an income year are calculated as:

    • low-tax contributed amounts (that do not relate to a defined benefit interest)
    • subtract excess concessional contributions
    • add defined benefit contributions.

    If a negative amount results from the calculation, then low-tax contributions are nil and, as a result, there is no Division 293 tax. A negative amount only arises where excess concessional contributions exceed the total of low-tax contributed amounts plus defined benefit contributions.

    Defined benefit contributions

    A regulation commenced on 20 February 2014 introducing an interim method for determining the amount of defined benefit contributions for Division 293 tax purposes for the 2012–13 income year only. Regulation 293-115.01External Link of the ITAR prescribed that the amount of defined benefit contributions for a person in the 2012–13 income year with a defined benefit interest is the person’s notional taxed contributions for the defined benefit interest for that income year.

    The ITAR also noted that the defined benefit contributions in respect of a defined benefit interest in a CPF is nil for the 2012–13 income year. This is because CPFs do not have notional taxed contributions amounts. For the 2013–14 income year and beyond, a State higher level office holder's low-tax contributions for an income year in respect of an interest in a CPF are nil, except to the extent that the person has made salary packaged contributions to their CPF.

    Further regulations effective from 17 May 2014 introduced the method for determining the amount of defined benefit contributions for Division 293 tax purposes for the 2013–14 and later income years. Subdivision 293-DA of the ITAR provides the method for determining the amount of defined benefit contributions for a person who is an accruing member with a defined benefit interest in a superannuation fund. The terms accruing member and non-accruing member are defined in subregulation 293-115.05(2)External Link of ITAR.

    The inclusion of defined benefit contributions in low-tax contributions ensures that a person with defined benefit interests is treated in a similar way to a person with accumulation interests for the purposes of the Division 293 tax. In defined benefit funds, employer contributions are typically not allocated to individual members defined benefit interests. Employer contributions are made in aggregate to the fund, based on actuarial advice, to ensure that there is enough money in the fund to pay benefits to members as they leave and benefit payments become due.

    Non-accruing members

    The amount of defined benefit contributions for a person who is a non-accruing member for the whole of an income year in respect of a defined benefit interest is nil.

    People in the pension phase (pensioned members) and members who have ceased employment whose benefits are deferred in the fund (on-hold members) for the whole of the income year are likely to constitute the majority of non-accruing members, but employed members who have reached their maximum benefit accrual can also be non-accruing members (also on-hold members).

    Accruing members with funded benefit interests

    The method for determining the amount of defined benefit contributions for accruing members with funded benefit interests is set out in subregulation 293-115.15(3External Link) of the ITAR. A defined benefit interest is a funded benefit interest if:

    • it is not an interest in a CPF, and
    • if the interest is in a public sector superannuation scheme, it meets the requirements of regulation 293-115.15(2).

    A person’s notional taxed contributions in a defined benefit interest are calculated according to Subdivision 292-D and Schedule 1A of the ITAR. For Division 293 tax purposes, the full (unlimited) value of notional taxed contributions for a funded benefit interest will be counted as defined benefit contributions for that interest. The amount of notional taxed contributions is an estimate, using prescribed assumptions, of the cost of providing the benefits financed by employer contributions to the fund, payable to the member on voluntary exit.

    Accruing members with interests other than funded benefit interests

    Under subregulation 293-115.20(2)External Link of the ITAR, defined benefit contributions for accruing members in this category are determined under Schedule 1AA of the ITAR. Schedule 1AA predominantly applies to defined benefit interests in CPFs and interests in fully/partially unfunded schemes. These funds will generally have to report to the ATO both an amount of notional taxed contributions and an amount of defined benefit contributions for each defined benefit member that will differ.

    The person’s notional taxed contributions represent benefits sourced from concessional contributions to a fund, calculated under Schedule 1A of the regulations, but without the application of grandfathering arrangements. Defined benefit contributions will also include employer contributions made under a salary sacrifice arrangement made in respect of the individual to defined benefit interests.

    The amount of notional employer contributions is an estimate, using prescribed assumptions, of the cost of providing the benefits payable to the member on voluntary exit that are not sourced from contributions made by the member themselves, or earnings on amounts in the fund. It includes the value of benefits funded by employer contributions to the fund, as well as the value of benefits that are sourced from outside the fund.

    Last-minute contributions

    Where trustees of a scheme certify that benefits will only ever be paid from contributions to the scheme and earnings on the contributions, interests in that scheme will be funded benefit interests to which subregulation 293-115.15 of the ITAR applies, and the amount of defined benefit contributions for the person will be equal to their notional taxed contributions.

    Where benefits are not wholly sourced from contributions and earnings to the scheme, or the trustee chooses not to certify that the scheme will only ever pay superannuation benefits from contributions made to the scheme or earnings on those contributions, all interests in the fund will be interests other than a funded benefit interest, and subregulation 293-115.20 of the ITAR applies. This means that the amount of defined benefit contributions for the person will be worked out under Schedule 1AA.

      Last modified: 15 May 2015QC 43294