Edited version of administratively binding advice

Authorisation Number: 1012329128423

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Advice

Subject: Non-concessional contributions cap - structured settlement or order for personal injury

Question:

Will the amount proposed to be contributed to a complying superannuation fund be excluded from being a non-concessional contribution for the 2012-13 financial year under subparagraph  292-90(2)(c)(ii) of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer:

Yes.

This administrative binding advice applies for the following period:

Year ended 30 June 2013

The scheme commenced on:

1 July 2012

Relevant facts:

You are aged under 55.

You sought compensation or damages as a result of personal injury suffered by you.

During your lifetime you have been totally dependent on your parents due to the personal injury.

Your parents are now elderly and the settlement proceeds will assist in providing independent 24 hours care which is required when your parents are physically unable to care for you or when they have both passed away.

You are currently employed receiving a limited income.

You currently have minimal superannuation through employer support.

In 2012 you reached a confidential settlement for compensation or damages in respect of your personal injury.

The Deed of settlement (the Deed) was executed and signed by yourself and the parties to the Deed on the particular date in 2012.

The settlement proceeds were received on a particular date in 2012 and are currently held on trust by your legal representative until clear guidance from the Commissioner is received in relation to the application of section 292-95 of the ITAA 1997 to your personal circumstances.

The compensation or damages is in respect of personal injury suffered and is not in respect of compensation or damages for loss or damage to property.

Due to lack of superannuation support received historically, you propose to contribute a significant proportion of your settlement proceeds (the proposed contribution) into superannuation and when you satisfy a condition of release, you are looking to access your superannuation.

The amount of your proposed contribution was advised to the Commissioner in 2012 by your taxation representative.

The Copy of Deed of Settlement was provided by your taxation representative in 2012.

You propose to make the contribution to your self managed superannuation fund (SMSF).

You wish to receive written confirmation from the Commissioner that your proposed contribution will be excluded from being non-concessional contributions for the 2012-13 financial year by the exclusion provisions of section 292-95 and paragraph 292-90(2)(c)(ii) of the ITAA 1997.

Medical certificates from two legally qualified medical practitioners have been provided for the purposes of the certification requirements of paragraph 292-95(1)(c) of the ITAA 1997.

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 Subsection 292-90(2).

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

Income Tax Assessment Act 1997 Section 292-95.

Income Tax Assessment Act 1997 Subsection 292-95(1).

Income Tax Assessment Act 1997 Paragraph 292-95(1)(b).

Income Tax Assessment Act 1997 Subsection 292-95(2).

Income Tax Assessment Act 1997 Subsection 292-95(3).

Income Tax Assessment Act 1997 Subsection 292-95(4).

Income Tax Assessment Act 1997 Subsection 292-95(5).

Reasons for decision

Summary

Provided the proposed contribution will be made to a complying superannuation fund within 90 days of the payment receipt date and a notice in the approved form is 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 (that is, in accordance with the conditions set out in section 292-95 and section 292-90) the proposed contribution will be excluded from being a non-concessional contribution for the 2012-13 financial year.

This administrative binding advice (ABA) is given on the basis of the facts stated in the description of the scheme as provided by you. Any material variation from these facts (including any matters not stated in the described facts and any departure from these facts) will mean that the ABA will have no effect. No entity will then be able to rely on this ABA as the Commissioner will consider that the scheme has been implemented in a way that is materially different from the scheme described.

Detail reasoning

Non-concessional contributions made to superannuation funds are subject to an annual cap of $150,000. A person will be liable to pay excess non-concessional contributions tax on non-concessional contributions over the cap (sections 292-80 and 292-85 of the ITAA 1997).

Non-concessional contributions for a financial year are defined under section 292-90 as being the sum of contributions covered by subsections 292-90(2) and 292-90(4) and the excess concessional contributions (if any) for the financial year.

Under subsection 292-90(2) a number of contribution types 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.

Section 292-95 of the ITAA 1997 deals with contributions arising from structured settlements or orders for personal injuries. The proposed contribution in this case has arisen because of the Deed of Settlement dated 17 July 2012 and is in respect of compensation for personal injury suffered by you. Therefore, we will need to determine if the proposed contribution to be made falls under this section.

Section 292-95 of the ITAA 1997 states:

(1) A contribution is covered under this section if:

(a) the contribution arises from:

(i) the settlement of a claim that satisfies the conditions in subsection (3); or

(ii) the settlement of a claim in relation to a personal injury suffered by you under a law of the Commonwealth or of a State or Territory relating to workers compensation; or

(iii) the order of a court that satisfies the conditions in subsection (4); and

(b) the contribution is made within 90 days after the later of the following:

(i) the day of receipt of the payment from which the contribution is made; or

(ii) in relation to subparagraph (a)(i) or (iii) - the day mentioned in subsection (2); and

(c) 2 legally qualified medical practitioners have certified that, because of the personal injury, it is unlikely that you can ever be *gainfully employed in a capacity for which you are reasonably qualified because of education, experience or training; and

(d) no later than the time the contribution is made to a *superannuation plan, you or your *legal personal representative notify the *superannuation provider in relation to the plan, in the *approved form, that this section is to apply to the contribution.

(2) For the purposes of subparagraph (1)(b)(ii), the day is:

(a) for a settlement mentioned in subparagraph (a)(i):

(i) the day on which the agreement mentioned in paragraph (3)(c) was entered into; or

(ii) if that agreement depends, for its effectiveness, on being approved (however described) by an order of a court, or on being embodied in a consent order made by a court - the day on which that order was made; or

(b) for an order mentioned in subparagraph (1)(a)(iii) - the day on which the order was made.

(3) For the purposes of subparagraph (1)(a)(i), the conditions are as follows:

(a) the claim:

(i) is for compensation or damages for, or in respect of, personal injury suffered by you; and

(ii) is made by you or your *legal personal representative;

(b) the claim is based on the commission of a wrong, or on a right created by statute;

(c) the settlement takes the form of a written agreement between the parties to the claim (whether or not that agreement is approved by an order of a court, or is embodied in a consent order made by a court).

(4) For the purposes of subparagraph (1)(a)(iii), the conditions are as follows:

(a) the order is made in respect of a claim that:

(i) is for compensation or damages for, or in respect of, personal injury suffered by you; and

(ii) is made by you or your *legal personal representative;

(b) the claim is based on the commission of a wrong, or on a right created by statute;

(c) the order is not an order approving or endorsing an agreement as mentioned in paragraph (3)(c).

(5) If a claim is both:

(a) for compensation or damages for personal injury suffered by you; and

(b) for some other remedy (for example, compensation or damages for loss of, or damage to, property);

Subsections (3) and (4) apply to the claim, but only to the extent that it relates to the compensation or damages referred to in paragraph (a), and only to amounts that, in the settlement agreement, or in the order, are identified as being solely in payment of that compensation or those damages.

From the above, for a payment to fall under this section the following conditions must be satisfied:

· 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;

· 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 ;

· the contribution must be made within 90 days of the payment being received or the order coming into effect, whichever is later; 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.

On the basis of the information provided, the first condition has been satisfied as the proposed contribution to be made to a superannuation fund has arisen from a compensation payment made to you as a result of a settlement for compensation or damages in respect of personal injury suffered by you.

The second condition has been satisfied as you have provided certificates from two medical practitioners certifying that you, as a result of the injury, is unlikely to ever be engaged in gainful employment in a capacity for which you would otherwise be reasonably qualified because of education, experience or training.

The Deed of Settlement was made on a particular date in 2012 and the proceeds from this settlement were received on trust by your legal representative on a particular date in 2012.

Therefore, for the purposes of subparagraph 292-95(1)(b)(i) of the ITAA 1997, the proposed contribution must be made to a complying superannuation fund within 90 days of the day of the receipt of the payment of the particular date in August 2012 (subparagraph 292-95(2)(a)(i) and paragraph 292-95(3)(c)).

Therefore the third condition will be satisfied if the proposed contribution is made within 90 days of the payment receipt date (the particular date in 2012).

It should also be noted that the exemption from the non-concessional contributions cap requires that no tax deduction is claimed in respect of the proposed contribution.

When making the proposed contribution, you or your legal representative will be required to give the relevant superannuation fund a notice in the approved form.

Provided all the necessary conditions are satisfied, the contribution that has arisen because of the Deed of settlement for personal injury will not be a non-concessional contribution for the 2012-13 financial year. Consequently, the contribution will not be counted towards your non-concessional contributions cap for the 2012-13 financial year.

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