Edited version of private ruling

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Ruling

Subject: Excess contributions tax - structured settlement

Will the amount, received as a settlement for personal injury, to be contributed to a complying superannuation fund be excluded from being a non-concessional contribution under section 292-90 of the Income Tax Assessment Act 1997 (ITAA 1997)?

No.

This ruling applies for the following period:

1 July 2009 to 30 June 2010

The scheme commenced on:

1 July 2009

Relevant facts:

Your client is over 55 years of age.

Your client had had a claim (the claim) with the courts.

Your client signed a deed of release (the Deed) between your client and various other parties regarding the claim.

Under the terms of the Deed your client was to be paid an amount (the settlement sum) in the proportions agreed between your client and the other parties.

Your client's lawyers confirmed that they had received the settlement sum in relation to the claim. They advised that two payments were being made to your client.

Your client has been living away from home as your client is living with a sibling to receive medical treatment. All correspondence was sent by the lawyers to your client's home address.

As your client was away from home your client did not receive the above correspondence.

A bank statement shows that two amounts were deposited.

You advise that two legally qualified medical practitioners, have certified that because of your client's claim, it is unlikely that your client can ever be gainfully employed in a capacity for which your client is reasonably qualified because of education, experience or training.

Your client has been recovering and has been too sick to seek any advice on investing funds.

Your client has had superannuation and life cover paid out from your client's superannuation fund as your client has met the conditions of release due to ill health.

Your client has had to wind down business on account of ill health.

Your client wants to put an amount from the above payments into superannuation to provide your client an income stream in order to maintain your client's living standard for the rest of your client's life.

No contributions had been made to a superannuation fund as yet.

Relevant legislative provisions:

Income Tax Assessment Act 1997 Section 292-80

Income Tax Assessment Act 1997 Section 292-85

Income Tax Assessment Act 1997 Section 292-90

Income Tax Assessment Act 1997 Section 292-95

Reasons for decision

Summary

The proposed contribution to a superannuation fund will not be excluded from being non-concessional contributions as the contribution arising from a structured settlement will not have been made within 90 days of receipt of the payment.

Detailed Reasoning

From 1 July 2007, non-concessional contributions made to superannuation funds are subject to an annual cap. A person will be liable to pay excess non-concessional contributions tax at the rate of 46.5% on non-concessional contributions over the cap in accordance with sections 292-80 and 292-85 of the ITAA 1997.

Non-concessional contributions for a financial year are defined under section 292-90 of the ITAA 1997.

Under subsection 292-90(2) of the ITAA 1997 certain contributions are excluded from being non-concessional contributions for a financial year. In particular, subparagraph 292-90(2)(c)(ii) excludes a contribution covered under section 292-95 of the ITAA 1997.

Section 292-95 of the ITAA 1997 deals with contributions arising from structured settlements or orders for personal injuries. The contribution your client wishes to make is from funds arising from a structured settlement in respect of compensation for an injury your client suffered.

Section 292-95 of the ITAA 1997 requires that the following conditions must be satisfied if the intended contribution is to be excluded from being non-concessional contributions:

· the contribution arises from a compensation payment to the injured person as a result of a court order, a structured settlement or a workers compensation claim (paragraph 292-95(1)(a))

· the contribution must be made within 90 days of the payment being received or the agreement being entered into, whichever is later (paragraph 292-95(1)(b) and subparagraph 292-95(2)(a)(i))

· two legally qualified medical practitioners must certify that as a result of the injury the injured person is unlikely to ever be able to be gainfully employed in a capacity for which they are reasonably qualified because of education, experience or training (paragraph 292-95(1)(c)), and

· a notice in the approved form must be provided to the trustee of the superannuation fund no later than the time the contribution is made stating that section 292-95 of the ITAA 1997 applies to the contribution (paragraph 292-95(1)(d)).

Compensation payment as a result of a structured settlement

The first condition has been satisfied as the contribution to be made to a superannuation fund has arisen from a compensation payment made to your client as a result of a structured settlement. The compensation payment was on account of your client's injury.

Superannuation contribution within 90 days

The second condition to be determined is whether the contribution will be made within 90 days of the payment being received or the day on which the written agreement between parties to the claim (the agreement) was entered into.

To exclude a contribution made from the proceeds of a structured settlement damages payment, subsection 292-95(1)(b) of the ITAA 1997 requires the contribution to be made within 90 days of the later of the day:

· of receipt of the payment from which the contribution is made, or

· on which the agreement was entered into (subparagraph 292-95(2)(a)(i)).

The Explanatory Memorandum to the Tax Laws Amendment (Simplified Superannuation) Bill 2006 described this requirement as follows:

1.96 The contribution must be made to a superannuation fund within 90 days of the payment being received or the structured settlement or order coming into effect, whichever is later. [Schedule 1, item 1, paragraph 292-95(1)(b)]

In this case, the later date is the date each payment was received by your client.

You have advised that no contribution had been made to a complying superannuation fund as yet.

The agreement was entered into on another specified date. Therefore, no superannuation contribution has been made within 90 days of the agreement being entered into.

Further, no superannuation contribution has been made into a complying superannuation fund within 90 days of the settlement monies being received by your client.

While you provided reasons why the contribution had not been made by the required time, the Commissioner has no discretion to extend the 90 day period for making contributions to a complying superannuation fund.

As a result, this condition will not be satisfied.

Medical certificates

You have advised that you have certificates from two medical practitioners that certify that your client, as a result of the injury, is unlikely to ever be able to be gainfully employed in a capacity for which he is reasonably qualified because of education, experience or training as per paragraph 292-95(1)(c) of the ITAA 1997.

Therefore, this condition is satisfied.

Notifying superannuation provider

As the payment has not been made to the superannuation fund during the 90 day period allowed, this condition does not apply.

Conclusion

As all the necessary conditions have not been satisfied, the intended contribution will not be excluded from being a non-concessional contribution for the 2009-10 income year.

Consequently, any contribution made from the settlement monies will be counted towards your client's non-concessional contribution cap for the 2009-10 income year.

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