Edited version of private ruling

Authorisation Number: 1011721920608

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Ruling

Subject: Concessional contributions cap - salary sacrifice to constitutionally protected superannuation fund

Question:

Will contributions made under a salary sacrifice arrangement to a constitutionally protected fund be counted towards your concessional contributions cap?

Answer: No

This ruling applies for the following period:

Year ended 30 June 2011

The scheme commenced on:

1 July 2010

Relevant facts and circumstances

You are over 50 years of age.

You are working for a state Government.

You are a member of a constitutionally protected fund (the Fund), an untaxed superannuation fund.

Superannuation contributions are being made to the Fund by your employer under a salary sacrifice arrangement.

Relevant legislative provisions:

Income Tax Assessment Act 1997 Section 292-15.

Income Tax Assessment Act 1997 Subsection 292-20(2).

Income Tax Assessment Act 1997 Section 292-25.

Income Tax Assessment Act 1997 Subsection 292-25(2).

Income Tax Assessment Act 1997 Paragraph 292-25(2)(c).

Income Tax Assessment Act 1997 Subparagraph 292-25(2)(c)(i).

Income Tax Assessment Act 1997 Subparagraph 292-25(2)(c)(ii).

Income Tax Assessment Act 1997 Subparagraph 292-25(2)(c)(iii).

Income Tax Assessment Act 1997 Subsection 292-80.

Income Tax Assessment Act 1997 Subsection 292-85(2).

Income Tax Assessment Act 1997 Paragraph 292-90(1)(b).

Income Tax Assessment Act 1997 Subsection 292-90(2).

Income Tax Assessment Act 1997 Paragraph 292-90(2)(c).

Income Tax Assessment Act 1997 Section 292-410.

Income Tax Assessment Act 1997 Section 305-80.

Superannuation (Excess Concessional Contributions Tax) Act 2006) Section 4.

Superannuation (Excess Concessional Contributions Tax) Act 2006) Section 5.

Superannuation (Excess Non-concessional Contributions Tax) Act 2006) Section 4.

Superannuation (Excess Non-concessional Contributions Tax) Act 2006) Section 5.

Reasons for decision

Summary

The Fund is a constitutionally protected fund (CPF). The contributions made to the Fund under the salary sacrifice arrangement are not included in your concessional contributions. As a result, these contributions are not counted towards your concessional contributions cap.

However, any personal superannuation contributions you make to the Fund will be counted against your non-concessional contributions cap for the relevant income year. The salary sacrifice contributions made to the Fund by your employer are also excluded from being non-concessional contributions.

When you receive, or roll-over, a benefit from the Fund, the element untaxed in the fund will be assessed against the untaxed plan cap amount, and any untaxed element in excess of this cap will be taxed at 46.5%.

Detailed reasoning

Concessional contributions

From 1 July 2007, concessional contributions made to superannuation funds are subject to an annual cap. Under subsection 292-20(2) of the Income Tax Assessment Act 1997 (ITAA 1997), for the 2010-11 income year the annual concessional contributions cap is $25,000. The concessional contributions cap is subject to indexation.

Between 1 July 2007 and 30 June 2012, a transitional concessional contributions cap will apply. From 1 July 2009 until 30 June 2012, the annual cap will be $50,000 for people aged 50 or over. If a person has more than one fund, all concessional contributions made to all their funds are added together and count towards the cap.

The transitional concessional contributions cap amount of $50,000 is not indexed.

Concessional contributions are contributions made to a complying superannuation fund by or for a person in a particular financial year which are included in the assessable income of the fund (subsection 292-25(2) of the ITAA 1997). Typically, these will include employer contributions and personal contributions claimed as a tax deduction by a self-employed person. Also included are contributions made under a salary sacrifice arrangement (SSA).

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% (subsection 292-15 of the ITAA 1997 and sections 4 and 5 of the Superannuation (Excess Concessional Contributions Tax) Act 2006).

In addition, the amount of any excess concessional contributions for a income year is counted towards the person's non-concessional contributions cap (paragraph 292-90(1)(b) of the ITAA 1997).

You were over 50 years of age on the last day of each of the income years ended 30 June 2010 to 2012. As such, you have access to the transitional concessional contributions cap of $50,000 for each of those income years.

Amounts which are not concessional contributions

Most contributions that are not assessable income of the fund are not concessional contributions. Under paragraph 292-25(2)(c) of the ITAA 1997 the following amounts are excluded from being concessional contributions:

· certain amounts transferred to a superannuation fund from a foreign superannuation fund (subparagraph 292-25(2)(c)(i));

· an amount that is a roll-over superannuation benefit to the extent that it contains an untaxed element that is not an excess untaxed roll-over amount (subparagraph 292-25(2)(c)(ii));

· a contribution made to a CPF (subparagraph 292-25(2)(c)(iii)).

The exclusion under subparagraph 292-25(2)(c)(iii) of the ITAA 1997 also applies to contributions that are made to a CPF under a SSA.

In your case, the Fund is a CPF. You are a member of the Fund therefore, the exclusion under subparagraph 292-25(2)(c)(iii) of the ITAA 1997 applies to the contributions your employer makes to the CPF under the SSA.

Accordingly, the salary sacrifice contributions are not included in your concessional contributions for the income year in which they are made. As a result, these contributions are not counted towards your concessional contributions cap for the 2010-11 income year.

Concessional contributions to a fund other than a CPF are counted towards the concessional contributions cap

As previously noted, under subsection 292-25(2) of the ITAA 1997 concessional contributions include employer contributions, contributions made under a SSA and personal contributions claimed as a tax deduction. Where concessional contributions are made to a complying superannuation fund other than a CPF, the contributions are counted towards your concessional contributions cap.

Therefore if concessional contributions are made by you or on your behalf to a fund other than the Fund, they will be counted towards your concessional contributions cap.

In light of this, we cannot confirm that in a given income year you will not be subject to excess contributions tax on amounts in excess of your concessional contributions cap for a financial year. The following examples illustrate this particular situation:

Example 1

Marcus is 38 years old and is an employee of a state government. The employer makes contributions of $20,000 in the 2009-10 financial year to a CPF. Marcus also salary sacrifices $15,000 to another super fund (not a CPF).

Marcus's concessional contributions cap amount for the 2009-10 year is $25,000.

The $20,000 concessional contribution to the CPF does not count towards Marcus' concessional contributions cap. Therefore, his concessional contributions for the financial year are $15,000.

This is less than his cap amount for the 2009-10 financial year, so he will not liable for excess concessional contributions tax.

Example 2

Marcus makes non-concessional contributions that total $550 to his CPF for the 2009-10 financial year. He also contributes $450,000 in non-concessional contributions to his other super fund.

As Marcus is under 65 years old, he can 'bring forward' two years of contributions. This will give him a non-concessional contributions cap of $450,000 for the 2009-10 financial year.

The $550 non-concessional contribution will be counted towards his non-concessional contributions cap along with the $450,000.

Therefore, he has exceeded the cap by $550 and will be liable to pay excess non-concessional contributions tax on $550.

Non-concessional contributions

From 1 July 2007, non-concessional contributions made to a complying superannuation fund will be subject to an annual cap (subsection 292-85(2) of the ITAA 1997). From 1 July 2009 the non-concessional contributions cap is always six times the concessional contributions cap. For the 2010-11 income year, as the concessional contributions cap is $25,000, the non-concessional contributions cap is $150,000.

Under subsection 292-90(2) of the ITAA 1997, contributions made in an income year to a complying superannuation fund in respect of you and which are not included in the assessable income of the fund are non-concessional contributions for the financial year. Typically, these will include:

· personal contributions for which an income tax deduction is not claimed;

· contributions a person's spouse makes to the person's superannuation fund account (spouse contributions); and

· transfers from foreign superannuation funds (excluding amounts included in the fund's assessable income).

As noted previously, the amount of any excess concessional contributions for that year are also included as non-concessional contributions (paragraph 292-90(1)(b) of the ITAA 1997).

A person will be taxed on non-concessional contributions that exceed the cap at the rate of 46.5% (subsection 292-80 of the ITAA 1997 and sections 4 and 5 of the Superannuation (Excess Non-concessional Contributions Tax) Act 2006) unless the bring-forward provisions apply. The person will be required to ask their superannuation fund to release an amount that is equal to the tax liability (section 292-410 of the ITAA 1997).

Amounts which are not non-concessional contributions

Some contributions are specifically excluded from being non-concessional contributions (paragraph 292-90(2)(c) of the ITAA 1997). These include:

· a Government co-contribution;

· a contribution arising from a structured settlement or an order for personal injury;

· a roll-over superannuation benefit;

· a contribution made to a CPF (other than a contribution included in the contributions segment of your superannuation interest in the fund).

The term 'contributions segment of your superannuation interest' typically refers to personal contributions made to a CPF by a member from their after tax salary. Such contributions are non-concessional contributions under subsection 292-90(2) of the ITAA 1997, and are counted towards the member's non-concessional contributions cap.

Therefore, any personal contributions you make to the CPF, for which you do not claim a tax deduction, are counted towards your non-concessional contributions cap in the income year in which they are made.

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