• How many superannuation interests does a member of a superannuation fund have in their fund?

    A 'superannuation interest' is defined, relevantly for present purposes, as 'an interest in a superannuation fund' (1) When read in context, the Commissioner considers that this definition generally refers to the rights of persons who have proprietary interests in trusts, interests under a trust that confer no proprietary interest in the assets of the trust, purely contractual rights (for example to a right to an annuity) and statutory rights to superannuation benefits.

    Accordingly, 'interest in' a fund refers to a distinct claim of any kind against a fund, whether it be proprietary in character or not. However, various regulations made under the income tax law modify this general principle by creating special rules for what constitutes a superannuation interest (2)

    Against this background, the following sets out the Commissioner's view as to what constitutes a superannuation interest in relation to the different kinds of superannuation fund.

    This document deals only with superannuation funds and not with approved deposit funds, retirement savings accounts or superannuation annuities.

    Self-managed superannuation funds (SMSFs)

    An amount that supports a superannuation income stream that is commenced from an SMSF is treated as a separate interest from immediately after the income stream commences (that is, once its tax free component and taxable component proportions have been determined) (3) In the case of multiple income streams commenced from the same SMSF, each income stream commenced gives rise to a separate interest from the interest to which each other income stream gives rise.

    Except for that case, a member of an SMSF always has just one interest in the SMSF (4)

    Funds with four or fewer members that are not SMSFs (that is, "small APRA funds") are not in the same category as SMSFs (5) They are covered by the next category.

    Superannuation funds other than SMSFs and Public Sector Superannuation Schemes (PSSS)

    An amount that supports a superannuation income stream that is commenced from a fund of this kind is treated as a separate interest from immediately after the income stream commences (that is, once its tax free components and taxable component proportions have been determined) (6) In the case of multiple income streams commenced from the same fund, each income stream commenced gives rise to a separate interest from the interest to which each other income stream gives rise.

    Except for that case, it is a question of fact whether the various amounts, benefits and entitlements that a member has in a fund constitute one interest or several interests in the fund. The principle described in the second paragraph above should be applied in addressing that question.

    If a member has separate accounts in a fund, the Commissioner accepts that an account constitutes a separate interest so long as, viewed as an objective matter, the account reflects a claim of the kind described in the second paragraph above that is separate and distinct from other claims of that kind that the member has against the fund. For example, if the member has bought separate 'products' under a separately documented process whereby the member acquires distinct sets of legal rights against the trustee.

    By contrast, merely purporting to divide a member's entitlements into separate accounts as a bookkeeping exercise, such as the separate bookkeeping for investments against which a person had a single claim, without any such objective basis does not establish that there are separate interests.

    Public sector superannuation schemes (including constitutionally protected funds)

    The same principles as in the previous section apply. However, for many public sector superannuation schemes (PSSS) the source of the various rights and obligations of scheme members is the legislation establishing the PSSS rather than a trust deed or a contract. An objective basis for discerning separate interests in the one scheme is likely therefore to be found in the relevant legislation than in any equitable or contractual relationship between trustee and member.

    There is one extra rule (7) If a benefit is partly sourced from contributions to the scheme and earnings on those contributions and partly from some other source, the member's interest is separated into two interests: one interest that consists of the contributions to the scheme and the earnings on those contributions; and one interest consisting of the remainder of the interest. (For this purpose the "contributions and earnings" are reduced by the amount specified in any notice given under s307-285 for the benefit.)

    Anti-avoidance

    Nothing in this document should be read as precluding the normal operation of the general anti-avoidance provisions in Part IVA of the Income Tax Assessment Act 1936. The creation or manipulation of separate superannuation interests by way of blatant, artificial or contrived arrangements for the sole or dominant purpose of obtaining a tax benefit may attract the operation of Part IVA. This would have consequences for the taxpayer who obtains the tax benefit, being the relevant member in this case (8) Practice Statement PS LA 2005/24 explains how the Commissioner interprets and administers Part IVA.

    References

    1. See the definition of 'superannuation interest' in section 995-1 of the Income Tax Assessment Act 1997 (ITAA 1997)
    2. Division 307 of the Income Tax Assessment Regulations 1997 (ITAR 1997)External Link
    3. Regulation 307-200.05 of the ITARExternal Link
    4. Regulation 307-200.02 of the ITARExternal Link
    5. Regulation 307-200.02 of the ITAR applies only to SMSFs and not to any other kind of fund
    6. See regulation 307-200.05 of the ITARExternal Link
    7. See regulation 307-200.03 of the ITARExternal Link
    8. The operation of Part IVA in relation to a scheme of this kind would not have direct consequences for a fund trustee unless the trustee obtained some tax benefit from the scheme. However, a person who markets or otherwise encourages the growth of a tax avoidance scheme in return for consideration may be penalised separately: see Division 290 of Schedule 1 to the Taxation Administration Act 1953
      Last modified: 25 May 2015QC 20281