ATO Interpretative Decision
ATO ID 2007/205
Income Tax
Assessability of superannuation contributions made in favour of local government councillorsFOI status: may be released
This ATOID provides you with the following level of protection:
If you reasonably apply this decision in good faith to your own circumstances (which are not materially different from those described in the decision), and the decision is later found to be incorrect you will not be liable to pay any penalty or interest. However, you will be required to pay any underpaid tax (or repay any over-claimed credit, grant or benefit), provided the time limits under the law allow it. If you do intend to apply this decision to your own circumstances, you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed. You may wish to obtain further advice from the Tax Office or from a professional adviser.
Issue
Will amounts paid by a local government council in the form of contributions to a complying superannuation fund that are assessable to the fund under section 295-160 of the Income Tax Assessment Act 1997 (ITAA 1997), represent assessable income of the councillor for the purposes of the ITAA 1997?
Decision
No. Amounts paid by a local government council in the form of contributions to a complying superannuation fund that are assessable to the fund under section 295-160 of the ITAA 1997, do not represent assessable income of the councillor for the purposes of the ITAA 1997.
Facts
The local government council has entered into an arrangement with its councillors under which the councillors have agreed to forego part of their remuneration in exchange for the local government council making contributions to a complying superannuation fund. The effect of the arrangement is that the amounts paid by the council to the complying superannuation fund are assessable to the fund as 'superannuation benefits for someone else' as set out in section 295-160 of the ITAA 1997.
The local government councillor is not carrying on a business in respect of their duties as a councillor.
Reasons for Decision
Income from the remuneration arrangement between the local government council and the councillor would normally be assessable under section 6-5 of the ITAA 1997 when it is received by the councillor. It may be taken to have been received under subsection 6-5(4) of the ITAA 1997 where it is otherwise dealt with on behalf of the councillor. However, contributions made to a complying superannuation fund on behalf of the councillor as part of an agreement between the local government council and the councillor will not fall within the ambit of subsection 6-5(4) of the ITAA 1997 because it is accepted that the councillor has agreed to forego part of the remuneration before earning the entitlement to receive that amount as ordinary income.
Once it is established that subsection 6-5(4) of the ITAA 1997 does not apply to the arrangement it becomes necessary to consider the application of section 15-2 of the ITAA 1997.
In Constable v. Federal Commissioner of Taxation (1952) 86 CLR 402; (1952) 10 ATD 93; (1952) 5 AITR 371 (Constable) the obiter comments of the majority of the High Court of Australia were to the effect that the sums contributed by the employer to the fund were not allowed, given or granted to an employee and were therefore not assessable under paragraph 26(e) of the Income Tax Assessment Act 1936 (ITAA 1936), but instead were paid to the administrators of the fund. While the members did not have a vested and indefeasible right to the employer contributions in that case, the court's comments support the view that section 15-2 of the ITAA 1997 (the rewritten version of paragraph 26(e) of the ITAA 1936) does not apply to the making of contributions to a superannuation fund by an employer for the employees' benefit.
Since the decision in Constable, the scheme of superannuation and taxation law has been prefaced on the view that a contribution by an employer to a superannuation fund is not the income of the employee. Much of the superannuation guarantee law and income tax law concerning the taxation of superannuation funds would be redundant if employer contributions were assessable income of employees when the contributions were made.
It is acknowledged that local government councillors are not employees. However, similarly to the position with employees the contributions made by the local government council represent assessable income of the superannuation fund as a contribution to provide benefits for someone else as set out under section 295-160 of the ITAA 1997. In light of this and the foregoing consideration of the decision in Constable, coupled with the subsequent development of the scheme of taxation of complying superannuation funds, it is considered that the same reasoning as applied to employees in respect to the application of section 15-2 of the ITAA 1997 would apply with equal force to local government councillors in the circumstances set out above.
Year of income: Year ended 30 June 2008
Legislative References:
Income Tax Assessment Act 1997
section 6-5
subsection 6-5(4)
section 15-2
section 290-10
section 290-60
section 295-160
paragraph 26(e) Superannuation Guarantee (Administration) Act 1992
section 12
Case References:
Constable v. Federal Commissioner of Taxation
(1952) 86 CLR 402
(1952) 10 ATD 93
(1952) 5 AITR 371
Related Public Rulings (including Determinations)
TR 2001/10
Keywords
Income
Local government
Superannuation contributions
Superannuation contributions for someone else - superannuation fund assessable income
ISSN: 1445-2782