Edited version of private ruling

Authorisation Number: 1011698122347

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Ruling

Subject: Assessable income

Question

Will contributions made to the superannuation fund for the benefit of the fund member by a Company (as trustee of a trust of which the fund member is a beneficiary) be included as assessable income of the fund?

Answer: Yes

This ruling applies for the following period:

2010-11 income year

The scheme commences on:

1 July 2010

Relevant facts and circumstances

The entity is a self-managed superannuation fund (the Fund).

The Fund has two trustees and one member.

A loyalty card (the Card) is to be issued by a company (the Company) pursuant to the proposal put forward by the Company to the Fund.

The Company has approached the Fund to invest in the Card.

It is proposed that a trust (the Member Trust) will be set up with the Company as trustee and the Fund member will be a beneficiary of the Member Trust.

The Business Plan and draft agreements for the Company indicate the proposed investment in the Card by the Fund will be effected by:

· an agreement between the Company and the Fund member

· an agreement between the Company and the Retailer(s)

· an agreement between the Company (as trustee of the Member Trust) and the Fund member (as a beneficiary of the Member Trust).

The proposal put forward by the Company describe the events that will occur to give effect to the proposed investment by the Fund as:

· The Fund member will enter into an agreement with the Company governing the terms of use and member entitlement with respect to the use of the Card.

· The Card will entitle the Fund Member to a certain discount when purchasing goods or services from an agreed list of Retailers.

· The amount of the discount will depend on the agreement reached between the Company and the Retailer(s), and may vary from retailer to retailer.

· A trust is created (the Member Trust) to hold the contributions made by the trustee for the benefit of the member beneficiary subject to the terms and conditions as described in the draft trust deed.

· The Company will be the trustee of the Member Trust and the Fund member will be a beneficiary of the Member Trust.

· The discount given by the Retailer(s) will not be provided for the Fund member's immediate benefit but credited to the Member Trust for the Fund Member as a beneficiary of the Member Trust.

· The Retailer(s) will transfer the discount amount into the Member Trust of which the Fund member is a beneficiary.

· The amount of the discount transferred into the Member Trust for the member beneficiary is referred to as the 'contributions'.

· According to the draft deed of the Member Trust, 'contributions' mean the monetary contributions that the beneficiary receives (and is entitled) by way of discounts for purchasing goods and services through the use of the Card.

· The Company (as trustee of the Member Trust) will on a quarterly basis, deposit, the total 'contributions (less any fees payable to the Company as trustee of the Member Trust) to the Fund for the benefit of the Fund member.

· The total 'contributions' are made for and on behalf of the Fund member into the Fund by the Company (in the capacity of trustee of the Member Trust of which the Fund member is a beneficiary).

· There are no current lists of participating retailers in the proposal put forward by the Company to the Fund.

· The Fund has no relationship (private or business) with the Company other than the proposed participation in the Card product.

Relevant legislative provisions

Section 295-160 of the Income Tax Assessment Act 1997

Section 295-165 of the Income Tax Assessment Act 1997

Section 295-170 of the Income Tax Assessment Act 1997

Section 295-171 of the Income Tax Assessment Act 1997

Section 295-185 of the Income Tax Assessment Act 1997

Section 295-190 of the Income Tax Assessment Act 1997

Subsection 295-190(1) of the Income Tax Assessment Act 1997

Section 295-200 of the Income Tax Assessment Act 1997

Subdivision 295-D of the Income Tax Assessment Act 1997

Section 295-260 of the Income Tax Assessment Act 1997

Section 295-265 of the Income Tax Assessment Act 1997

Reasons for decision

Summary

The contributions made to the Fund by the Company (as trustee of the Member Trust for the benefit of the Fund member) will be included as assessable income of the Fund for the income year in which the contributions are made.

Detailed reasoning

Subdivision 295-C of the Income Tax Assessment Act 1997 (ITAA 1997) provides that, unless specifically excluded, contributions made to a superannuation fund by or for a person, will be included as assessable income of the superannuation fund for the income year in which the contributions are made. Subject to certain exceptions, there are basically three types of assessable contributions:

· those made by a contributor (for example, an employer) on behalf of someone else (for example, an employee); and

· those made on the contributor's own behalf for which the contributor is entitled to a deduction; and

· those transferred from a foreign superannuation fund to an Australian superannuation fund.

The table in section 295-160 of the ITAA 1997 sets out what amounts are to be included as assessable income of a superannuation fund and includes amounts that are contributions made to provide superannuation benefits for fund members. Also included are contributions made by a third party to a superannuation fund for the benefit of a person who is a member of the superannuation fund.

Contributions made on behalf of a spouse or temporary resident of Australia are generally not assessable income of a superannuation fund. Also excluded are Government co-contributions and contributions made for the benefit of a child (who is a person under 18 and the contributions are not made by or on behalf of the person's employer).

Certain contributions that are also specifically excluded are:

· certain roll-over superannuation benefits

· personal contributions not covered by a section 290-170 notice for the purposes of claiming a tax deduction

· certain amounts of a superannuation benefit transferred from a foreign fund to an Australian superannuation fund

· the entire tax-free component of a directed termination payment

Taxation Ruling Income tax: superannuation contributions (TR 2010/1) explains the Commissioner's view as to the ordinary meaning of the word 'contribution' in so far as 'contribution' is used in relation to a superannuation fund, approved deposit fund or retirement savings account in the ITAA 1997. It considers the ordinary meaning of contribution, how a contribution can be made and when a contribution is made.

Paragraph 4 of TR 2010/1 provides the ordinary meaning of contribution in the superannuation context,

as a contribution is anything of value that increases the capital of a superannuation fund provided by a person whose purpose is to benefit one or more particular members of the fund or all of the members in general.

Paragraph 12 of the ruling also provides a description of this by typifying a superannuation fund's capital is most commonly increased by transferring funds to the superannuation provider and, as a general rule, the contribution will be made when the funds are received by the superannuation provider.

On the basis of the facts as presented, the contributions that are to be made by the Company to the Fund are contributions that are included as assessable income of the Fund in accordance with section 295-160 of the ITAA 1997. This is because the contributions are to be made by the Company (as trustee of the Member Trust) for the benefit of the Fund member, and as such, are contributions made by a third party to a superannuation fund for the benefit of a person who is a member of the fund.

In addition, they are not contributions or amounts that are specifically excluded from the assessable income of a superannuation fund under Subdivision 295-C and Subdivision 295-D of the ITAA 1997.

It should be noted that in making this decision in regards to the income tax issues in the ruling application, the Commissioner has not considered the following matters under the Superannuation Industry (Supervision) Act 1993 and the Superannuation Industry (Supervision) Regulations 1994 in regard to:

· the sole purpose test

· the acceptance of contributions

· whether the investments as proposed will be made and are maintained on a arm's length basis at all times.

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