• Defined benefit funds – notional taxed contributions

    Contributions made to defined benefit funds are not always linked to individual members. You must work out the 'notional taxed contributions' for all your members who have a defined benefit interest with your fund.

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    Given the level of detail in the regulations, the information here is intended as general guidance only. It does not apply to a super interest in a constitutionally protected fund.

    Notional taxed contributions

    If your super fund offers a defined benefit interest, you must determine the notional taxed contributions for each member with a defined benefit interest for each financial year, and report them as part of their employer contributions.

    A member holds a defined benefit interest within a super fund if all, or part, of the super benefits payable to them are defined by:

    • reference to their salary or another person's salary at a particular date
    • a specified amount or a specified conversion factor.

    Notional taxed contributions have the meaning given by Subdivision 292-D of the Income Tax Assessment Regulations 1997External Link. As trustee of the fund, you must determine each member's notional taxed contributions as required by the regulations.

    If a member with a defined benefit interest is eligible for 'grandfathering' of their notional taxed contributions amount, special rules apply to how you determine their notional taxed contributions.

    When you report member contributions to us, you must include the amount of notional taxed contributions you have determined for the member as part of their employer contributions.

    Grandfathering of notional taxed contributions

    Is the member eligible?

    You must determine each year which, if any, of your members are eligible for the grandfathering provisions.

    If your members are eligible for grandfathering there are special rules that apply to determine their notional taxed contributions. This may mean that members' notional taxed contributions may be taken to be at, but not in excess of, the maximum level of the cap.

    2009–10 and later financial years

    For a member to be eligible for grandfathering of their notional taxed contributions for the 2009–10 and later financial years:

    • the member's notional taxed contribution for the year must otherwise exceed their concessional contributions cap
    • the member must have held either
      • the defined benefit interest on 12 May 2009
      • a defined benefit interest on 12 May 2009 (the original interest) and all the requirements in relation to the transfer of the interest to your fund must be met
       
    • any other conditions (if any) in the regulations must be satisfied.

    Requirements for the transfer of the interest include:

    • the entire value of the original interest was transferred directly to the current interest after 12 May 2009 or was transferred to another super interest either directly or through a series of transfers between super interests
    • the member's rights to accrue future benefits under the original and current interests must be equivalent
    • the member's notional taxed contributions before applying the grandfathering rules either
      • do not exceed what they would have been if the transfer had not taken place
      • satisfy the conditions (if any) specified in the regulations.
       

    2007–08 and 2008–09 financial years

    For a member to be eligible for grandfathering of their notional taxed contributions for the 2007–08 and 2008–09 financial years:

    • the member's notional taxed contributions for the year must otherwise exceed their concessional contributions cap
    • the member must have either held
      • the defined benefit interest on 5 September 2006
      • a defined benefit interest on 5 September 2006 (the original interest) and all the requirements for the transfer of the interest to your fund must be met
       
    • any other conditions (if any) in the regulations must be satisfied.

    Requirements for the transfer of the interest include:

    • the entire value of the original interest was transferred directly to the current interest after 5 September 2006 or was transferred to another super interest either directly or through a series of transfers between super interests
    • the member's rights to accrue future benefits under the original and current interests must be equivalent
    • the member's notional taxed contributions before applying the grandfathering rules, either
      • do not exceed what they would have been if the transfer had not taken place
      • satisfy the conditions (if any) specified in the regulations.
       

    Where are notional taxed contributions reported?

    The amount of notional taxed contributions you have determined is included in the amount of employer contributions that you report in the:

    • Member contributions statement for reporting contributions made in a financial year
    • Rollover benefits statement for reporting contributions that are rolled over to another super fund.

    The member's notional taxed contributions may not be the only employer contributions you have to report for the member. More information about your reporting obligations is contained in the instructions to the reporting forms.

    Examples

    Example 1

    Art had a defined benefit interest on 5 September 2006. He also held an accumulation interest with the same fund. He was eligible for grandfathering of his notional taxed contributions in the 2008–09 financial year. He also salary sacrificed $100 per fortnight into the accumulation interest.

    Art turned 50 years old in the 2011–12 financial year. Art's concessional contributions cap was $50,000. Although he received a pay increase during the year, Art's fund determined he was still eligible for grandfathering of his notional taxed contributions. He also continued to salary sacrifice $100 per fortnight into the accumulation interest.

    Art's fund worked out that his notional taxed contributions were $27,000 in the 2011–12 financial year. As his notional taxed contributions were less than his concessional contributions cap for the year, the fund reported his employer contributions as $27,000 plus $2,600 = $29,600.

    In the 2012–13 financial year Art's concessional contributions cap is $25,000. Art will need to review his salary sacrificing arrangements and his employee component as he will exceed the concessional contributions cap for the 2012–13 financial year. As Art is still eligible for grandfathering, and his notional taxed contributions of $27,000 is more than his concessional cap of $25,000, the fund will report his employer contributions as $25,000 plus $2,600 = $27,600. Art has excess contributions of $2,600 in 2012–13.

    Example 2

    Susan, 55 years old, had a defined benefit interest on 5 September 2006. As she met all the conditions, she was eligible for grandfathering of her notional taxed contributions in the 2007–08 financial year.

    Susan changed jobs on 1 April 2009 and obtained a more senior position with another company which also offered a defined benefit plan. Susan is not eligible for grandfathering in her new fund as she did not hold this defined benefit interest on 5 September 2006. As Susan is not eligible for grandfathering of her notional taxed contributions in her new fund, they must include the amount of Susan's notional taxed contributions as determined under the regulations in her employer contributions for the 2008–09 financial year. Susan may still be eligible for grandfathering of her 2008–09 notional taxed contributions in her old fund.

    However, as Susan was a member of her new fund on 12 May 2009, she may be eligible for grandfathering of her notional taxed contributions to this fund in the 2009–10 financial year or subsequent financial years (provided she meets all the conditions).

    End of example

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    Last modified: 08 Sep 2015QC 19379