ATO Interpretative Decision

ATO ID 2001/3


Undeducted Purchase Price (UK AFPS)
FOI status: may be released
Status of this decision: Decision Current
CAUTION: This is an edited and summarised record of a Tax Office decision. This record is not published as a form of advice. It is being made available for your inspection to meet FOI requirements, because it may be used by an officer in making another decision.

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you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed.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.


Do pensions paid to former members of the UK Armed Forces Pensions Scheme (AFPS) have an undeducted purchase price?


The "pension abatement" does not constitute undeducted purchase price.


Members of the AFPS do not contribute directly to the AFPS. However an adjustment known as the 'pension abatement' is made to the recommended salaries to take into account the relative benefits over those available to civilians.

Reasons For Decision

The taxpayer considered that the 'pension abatement' meant that members of the AFPS had purchased their pensions. However, the 'pension abatement' is not a contribution by the member. It is an employer contribution somewhat analogous to a salary sacrifice arrangement whereby the member receives a reduced salary in return for superannuation benefits. As such there is no undeducted purchase price of an AFPS pension.

Note : Taxation Ruling TR 93/13 applies only to British National Insurance Scheme pensions. The undeducted purchase price of eight percent (8%) does not apply to pensions paid from AFPS.
Note : Subsections 27A(1) and 27A(5C) of the Income Tax Assessment Act 1936 have been repealed after the 2006-2007 income year, by the Superannuation Legislation Amendment Simplification Act 2007. However, this ATO Interpretative Decision remains current in relation to section 27H of the Income Tax Assessment Act 1936.

Date of decision:  22 May 1998

Legislative References:
Income Tax Assessment Act 1936
   subsection 27A(1)
   subsection 27A(5C)
   section 27H

Related Public Rulings (including Determinations)
TR 93/13

Undeducted purchase price

Siebel/TDMS Reference Number:  BAN80104; 1-5JJCM8W; 1-6H77YQT; 1-FZRSRJG

Business Line:  Superannuation

Date of publication:  4 June 2001
Date reviewed:  7 August 2018

ISSN: 1445-2782