Edited version of private ruling

Authorisation Number: 1011545018536

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Ruling

Subject: Variation of a notice of intent to deduct contributions

Question

Can a 'notice of intent to deduct contributions' made for the 2008-09 income year be varied under section 290-180 of the Income Tax Assessment Act 1997 when the superannuation interest has been rolled-over to commence an allocated pension?

Answer: No.

This ruling applies for the following period:

Year ended 30 June 2009.

The scheme commences on:

1 July 2008.

Relevant facts and circumstances

Your client, who is aged between 50 and 65 years of age, had an existing superannuation account.

In late June 2009, your client made a personal superannuation contribution to a new superannuation account in a complying superannuation fund (the fund). The contribution was intended to be a non-concessional contribution.

In mid July 2009 a further contribution was made to the superannuation account on your client's behalf as a non-concessional contribution.

After your client made the personal contribution, your client received correspondence from the fund trustee. This correspondence included a form where your client was requested to advise the amount of the personal contribution that your client intended to claim as an income tax deduction in the 2008-09 income year. In response, your client stated on this form an intention to claim a deduction for the entire amount of the personal contribution in this income year.

The fund trustee corresponded directly with your client, and did not send copies of the forms it provided to your client to you as your client's financial planner.

In late July 2009 the fund trustee received your client's statement of intent to claim the deduction.

Income tax was deducted from the superannuation account. The superannuation account was then closed.

A number of days later your client commenced to draw an allocated pension. The opening balance of the pension included the personal contribution, the further contribution and other superannuation funds your client held.

In late June 2010 your client's income tax return for the 2008-09 income year was lodged with the Australian Taxation Office (ATO). Your client did not claim a deduction for personal superannuation contributions in the return for this income year.

You have approached the fund trustee about this matter. In reply the fund trustee has advised that as the superannuation policy into which the contribution was made has been closed, they are unable to assist with any amendments to this policy.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 290-170,

Income Tax Assessment Act 1997 Paragraph 290-170(2)(c),

Income Tax Assessment Act 1997 Section 290-180,

Income Tax Assessment Act 1997 Subsection 290-180(1),

Income Tax Assessment Act 1997 Subsection 290-180(2),

Income Tax Assessment Act 1997 Subsection 290-180(3),

Income Tax Assessment Act 1997 Paragraph 290-180(3)(a),

Income Tax Assessment Act 1997 Subsection 290-180(3A) and

Income Tax Assessment Act 1997 Paragraph 290-180(3A)(c).

Reasons for decision

Summary

Your client's notice of intent to claim a deduction for the 2008-09 income year was valid. Your client cannot vary the notice for the personal contribution for two reasons:

1. the variation notice would be given to the fund trustee after the date on which your client lodged an income tax return for the income year to which the original notice of intent relates; and

2. the contribution covered by the original notice has been used to commence the payment of the allocated pension to your client.

Detailed reasoning

Personal superannuation contributions made in the 2008-09 income year

Where all the conditions in subdivision 290-C of the Income Tax Assessment Act 1997 (ITAA 1997) are satisfied, a person can claim a deduction for personal contributions they make to a superannuation fund.

These conditions are explained in detail in Taxation Ruling TR 2010/1 'Income Tax: superannuation contributions' (TR 2010/1).

One of these conditions, in section 290-170 of the ITAA 1997, is that the member making a contribution must provide a valid notice of intent to claim a deduction (the notice) to their superannuation fund. The notice must be in the approved form and must have been given to the fund trustee by the required time. The member must also have been given an acknowledgment of receipt of the notice by the fund trustee.

In this case your client's notice of intent for the 2008-09 income year was lodged correctly and was duly acknowledged by the fund trustee. Therefore your client has satisfied the notice of intent to deduct condition in section 290-170 of the ITAA 1997.

Variation of a notice of intent to deduct conditions

In accordance with subsection 290-180(1) of the ITAA 1997 a person cannot revoke or withdraw a valid notice of intent in relation to a personal contribution. However, a valid notice can be varied under section 290-180 of the ITAA 1997 subject to a number of restrictions as follows:

290-180(2) You can vary a valid notice, but only so as to reduce the amount stated in relation to the contribution (including to nil). You do so by giving notice to the trustee or the *RSA provider in the *approved form.

290-180(3) However, you cannot vary a valid notice after:

(a) if you have lodged your income tax return for the income year in which the contribution was made on a day before the end of the next income year - the end of that day; or

(b) otherwise - the end of the next income year.

290-180(3A) The variation is not effective if, when you make it:

(a) you were not a member of the fund or the holder of the *RSA; or

(b) the trustee or *RSA provider no longer holds the contribution; or

(c) the trustee or RSA provider has begun to pay a *superannuation income stream based in whole or part on the contribution.

Relevant to this case are the restrictions in section 290-180 of the ITAA 1997 around:

· the time limits for your client to lodge a variation notice with the fund trustee (subsection 290-180(3)), and

· whether the contribution of $150,000 (or part of the contribution) has been used to commence the payment of a superannuation income stream to your client (paragraph 290-180(3A)(c)).

The requirements of subsection 290-180(3) of the ITAA 1997

The required time by which your client must lodge a variation notice with the fund trustee is specified in subsection 290-180(3) of the ITAA 1997. Variation notices are subject to the same time constraints as the lodgment of an original notice of intent.

Subsection 290-180(3) of the ITAA 1997 requires that your client must give a valid variation notice to the fund trustee in respect of the contribution, before your client lodges an income tax return for the 2008-09 income year or by 30 June 2010, whichever is the earlier.

Your client's income tax return for this income year was lodged in late June 2010. As your client's tax return has been lodged, the required time by which a valid variation notice must be lodged is the lodgement date of the tax return.

Your client has yet to provide the fund trustee with a variation notice applying to the personal contribution covered by the original notice, and as noted above, the tax return for the income year to which the original notice relates has already been lodged.

As your client did not lodge a variation notice with the fund trustee before the tax return for this income year was lodged, it is too late for the fund trustee to accept the notice from your client. As a result, such a variation notice will not be effective, and the fund trustee cannot accept the notice.

Therefore in accordance with subsection 290-180(3) of the ITAA 1997, your client cannot vary the valid notice covering the personal contribution.

The requirements of paragraph 290-180(3A)(c) of the ITAA 1997

As noted above, paragraph 290-180(3A)(c) of the ITAA 1997 provides that a person cannot vary a valid notice where the fund trustee has commenced to pay an income stream based in whole or part on the contribution. This provision mirrors the condition for the validity of notices set out in subparagraph 290-170(2)(c)(iii) of the ITAA 1997.

In this respect, paragraphs 69 and 72 of TR 2010/1 discuss the factors to be considered in the interpretation of paragraph 290-170(2)(c), as follows:

69. A notice is not valid in certain circumstances, including a notice given, when

· the person is no longer a member of the fund (for example, because the person's benefits have been paid to them or they have rolled over their benefits in full to another fund);

· the superannuation provider no longer holds the contribution (for example, the trustee may no longer hold a contribution where a person has been paid a lump sum superannuation benefit or had part of their benefit rolled over to another superannuation fund); or

· the superannuation provider has commenced to pay an income stream based in whole or part on the contribution. [emphasis added]

….

69. An income stream is based in whole or part on the contribution if it is commenced from the superannuation interest to which the contribution was made - see Example 11.

Because paragraph 290-180(3A)(c) of the ITAA 1997 mirrors the condition specified in subparagraph 290-170(2)(c)(iii), the factors discussed in paragraphs 69 and 72 of TR 2010/1 are also considered in the interpretation of paragraph 290-180(3A)(c).

Example 11 - invalid notice of intention to deduct in paragraphs 100 to 102 of TR 2010/1 describes the circumstances where a person gives a section 290-170 notice to the fund after a pension using part of the person's superannuation interest in the fund was commenced.

In paragraph 101 of TR 2010/1 the Commissioner explains that such a notice will be invalid, because the fund will have begun to pay an income stream based in whole or in part on the contribution. This example is also relevant to the interpretation of paragraph 290-180(3A)(c) of the ITAA 1997.

Based on the above, a variation notice applying to a contribution covered in the original 'notice of intent' given under section 290-170 of the ITAA 1997, will not be effective if it is given by a member after the superannuation provider has commenced to pay a superannuation income stream based in whole or in part on the contribution.

The requirements of paragraph 290-180(3A)(c) are not satisfied

Your client's allocated pension commenced a number of days after the fund trustee received the original notice of intent, and the superannuation account into which your client made the personal contribution in late June 2009 has been closed.

The allocated pension commenced with a balance which included the personal contribution covered by your client's original notice, a further contribution made on your client's behalf and other superannuation funds your client held. Accordingly the allocated pension was commenced with an opening balance which included both the personal contribution and the further contribution.

It follows that in late July 2009 an allocated pension was commenced partially funded by the personal contribution your client intended to claim as a deduction in the 2008-09 income year.

It is evident that your client did not give to the fund trustee a variation notice applying to the contribution covered by the original notice before the allocated pension had commenced.

Therefore your client commenced to receive the allocated pension from the Fund before your client attempted to vary the original notice.

In view of the above and paragraph 290-180(3A)(c) of the ITAA 1997, your client's valid notice of intent covering the personal contribution cannot be varied. This is because your client has started receiving an income stream based in whole or in part on the personal contribution your client intended to claim as an income tax deduction.

As noted previously, the Commissioner states in paragraph 72 of TR 2010/1 that a superannuation income stream is based in whole or part on the contribution if it is commenced from the superannuation interest to which the contribution was made. In this respect, the Commissioner explains in paragraph 272 that the view is taken that any superannuation income stream commenced from a superannuation interest is based 'in whole or in part on' a contribution made to that superannuation interest.

In this case, the personal contribution covered by the original notice of intent was included in the superannuation interest which was rolled-over from your client's superannuation account to commence the allocated pension. As a result, the contribution was used to commence the payment of an income stream to your client.

For these reasons it is too late for the trustee to accept a variation notice from your client in relation to the contribution. In accordance with paragraph 290-180(3A)(c) of the ITAA 1997 such a notice is ineffective, and the trustee cannot accept the notice.

This means the fund cannot alter its treatment of the contribution as a concessional contribution in accordance with the original notice. In addition, the fund trustee cannot amend the fund's income tax return to exclude the contribution as income, and so recover any income tax remitted to the ATO in relation to the contribution.

As a result, the trustee is unable to adjust the balance of your client's superannuation account to include the income tax which was deducted from this account just before the roll-over of the superannuation interest into the allocated pension.

Conclusion

In view of all the above, your client does not satisfy the requirements prescribed in section 290-180 of the ITAA 1997. Accordingly your client cannot vary the valid notice of intent covering the personal contribution your client made. A notice your client purports to give to the trustee to vary this notice will not be effective for two reasons:

(i) it would be given to the trustee after the date on which the tax return for the income year to which the original notice relates was lodged (paragraph 290-180(3)(a)); and

(ii) the contribution has been used to commence the payment of an income stream to your client (paragraph 290-180(3A)(c)).

Therefore the amount of the deduction previously stated in the original notice in relation to the personal contribution, could not and cannot be varied by the fund trustee.

Unfortunately, section 290-180 of the ITAA 1997 does not give to the Commissioner the power to exercise a discretion to grant an extension of time for a person to lodge a variation of a valid notice of intent under that section.

Further issues for consideration

Your concern that your client may incur a tax liability for the 2008-09 financial year in addition to the income tax deducted from your client's superannuation account will now be addressed.

Excess concessional contributions

From 1 July 2007, concessional contributions made to superannuation funds are subject to an annual cap. For the 2008-09 financial year the annual concessional contributions cap is $50,000.

The concessional contributions cap is subject to indexation.

In the 2008-09 financial year, a transitional concessional contributions cap applies. In this financial year, the annual cap is $100,000 for people aged 50 or over. If a person has more than one superannuation fund, all concessional contributions made to all their superannuation funds are added together and count towards the cap. The transitional concessional contributions cap amount of $100,000 is not indexed.

Concessional contributions in excess of the concessional contributions cap are called excess concessional contributions. A person is taxed on the excess concessional contributions at a rate of 31.5%. In addition, the amount of any excess concessional contributions for a financial year is counted towards the person's non-concessional contributions cap.

As your client was over age 50 in the 2008-09 financial year, the transitional concessional contributions cap of $100,000 applied.

The personal contribution exceeded the transitional concessional contributions cap, resulting in excess concessional contributions. Your client is taxed on the excess concessional contributions.

However the Commissioner has the discretion, in special circumstances, to disregard or reallocate excess contributions for a financial year for the purposes of excess contributions tax.

If a person provides the Commissioner with an application for this discretion, the Commissioner may make a written determination that, for the purposes of working out their excess contributions for a financial year, all or part of the concessional contributions should be either disregarded or allocated to another financial year.

The application must be made in the approved form within 60 days from the day your client receives an excess contributions tax assessment for a financial year. The Commissioner may allow a longer period in which the application can be made.

However, the determination can be made only if it is considered that there are special circumstances in your client's case, and if making the determination is consistent with the object of the legislation. The Commissioner's guidelines on the exercise of the discretion are set out in Practice Statement Law Administration PS LA 2008/1.

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