| Disclaimer This edited version has been archived due to the length of time since original publication. It should not be regarded as indicative of the ATO's current views. The law may have changed since original publication, and views in the edited version may also be affected by subsequent precedents and new approaches to the application of the law. You cannot rely on this record in your tax affairs. It is not binding and provides you with no protection (including from any underpaid tax, penalty or interest). In addition, this record is not an authority for the purposes of establishing a reasonably arguable position for you to apply to your own circumstances. For more information on the status of edited versions of private advice and reasons we publish them, see PS LA 2008/4. |
Edited version of your written advice
Authorisation Number: 1012988128276
Date of advice: 22 March 2016
Advice
Subject: Concessional contributions - allocations from a reserve
Questions
Will the amounts transferred from the general reserve' of the Fund to members of the Fund be concessional contributions for the purposes of Subdivision 291 of the Income Tax Assessment Act 1997 and count towards each members concessional contributions cap?
Advice/Answers
Yes
This ruling applies for the following period
Year ended 30 June 2016
The scheme commenced on
1 July 2015
Relevant facts and circumstances
1. The Fund was established in the 19XX-XX income year predominately for the benefit of Member 1 and their spouse Member 2.
2. In the 20XX-XX income year Member 1 and Member 2 commenced complying pensions.
3. Member 1 passed away in in the 20XX-XX income year and Member 2 became the reversionary beneficiary of Member 1's pension.
4. Subsequently, in the 20XX-XX income year Member 2 passed away.
5. The value of Member 1 and Member 2's pensions were transferred to a general reserve in the Fund.
6. The remaining members of the Fund are Member 1 and Member 2's child, Member 3, and Member 3's spouse, Member 4.
7. You state that:
• any amounts transferred from the general reserve to Member 3 and Member 4 will be counted against their annual concessional contribution cap. This severely impacts their wishes to wind up the Fund and transfer Member 3 and Member 4's entitlements to a complying superannuation fund which is not a self-managed superannuation fund;
• it could take a number of years for the full amount of the general reserve to be transferred out of the Fund and the Fund cannot be wound up until the general reserve is fully exhausted; and
• the trustees wish to be able to transfer the amount from the general reserve in one transaction to enable the Fund to be wound up as soon as possible. The trustees seek approval to do this without the transfer being assessed against Member 3 and Member 4's concessional contribution cap.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 295-160
Income Tax Assessment Regulations 1997 Regulation 292-25.01
Superannuation (Excess Concessional Contributions Tax) Act 2007
Taxation Administration Act 1953 Division 359
Detailed Reasoning
Excess contributions tax - transfer from reserves
In your application for a private binding ruling you asked whether a transfer from a reserve in a self-managed superannuation fund to the members of the fund would be a concessional contribution to members and count towards their concessional contribution cap.
As the question is in respect of the application of the Superannuation (Excess Concessional Contributions Tax) Act 2007, the application is not in respect of a relevant provision under Division 359 of Schedule 1 to the Taxation Administration Act 1953 (TAA 1953). Consequently, a private ruling cannot be given in respect of the question raised. However, in the interests of sound administration, an administratively binding advice (ABA) can be given in response to this question.
Concessional contributions
Concessional contributions are contributions made in respect of a person in the financial year to a complying superannuation plan and included in the assessable income of the superannuation provider.
Section 295-160 of the Income Tax Assessment Act 1997 (ITAA 1997) sets out the contributions or payments which are included in the assessable income of a complying superannuation fund and includes contributions to provide superannuation benefits for someone else (except a contribution that is a roll-over superannuation benefit).
Concessional contributions include employer contributions, salary sacrifice contributions and personal contributions claimed as a tax deduction by a self-employed person. Regulation 292-25.01 of the Income Tax Assessment Regulations 1997 (ITAR 1997) sets out conditions for the purpose of allocating an amount in a complying superannuation fund in relation to concessional contributions for a financial year. Subregulation 292-25.01(2) of the ITAR 1997 provides that subject to subregulation (3) an amount is to be treated as having been allocated by the superannuation provider in relation to concessional contributions for a financial year if it is:
(a) allocated under Division 7.2 of the Superannuation Industry (Supervision) Regulations 1994; and
(b) an assessable contribution under Subdivision 295-C of the ITAA 1997.
Amounts allocated from a reserve
In accordance with subregulation 292-25.01(4) of the ITAR 1997, an amount allocated from a reserve, other than an amount that is covered by subregulation (2), is to be treated as having been allocated by the superannuation provider:
(a) unless:
(i) the amount is allocated, in a fair and reasonable manner:
(A) to an account for every member of the complying superannuation plan; or
(B) if the member is a member of a class of members of the complying superannuation plan, and the amount in the reserve relates only to that class of members - to an account for every member of the class; and
(ii) the amount that is allocated for the financial year is less than 5% of the value of the member's interest in the complying superannuation plan at the time of allocation; or
(b) unless:
(i) the amount is allocated from a reserve used solely for the purpose of enabling the fund to discharge all or part of its liabilities (contingent or not), as soon as they become due, in respect of superannuation income stream benefits that are payable by the fund at that time; and
(ii) any of the following applies:
(A) the amount has been allocated to satisfy a pension liability of the plan paid during the financial year;
(B) on the commutation of the income stream, except as a result of the death of the primary beneficiary, the amount is allocated to the recipient of the income stream, to commence another income stream, as soon as practicable; …
Trustees of self-managed superannuation funds (SMSFs) are required to report to the Australian Taxation Office (ATO) all reportable allocations from reserves that are made in a financial year.
In this case, the amount to be allocated from the general reserve is greater than 5% of the value of the members interest in the Fund at the time of allocation. In addition, the amount to be allocated from the general reserve is not used solely for the purpose of enabling the Fund to discharge all or part of its liabilities. Therefore, the amount to be allocated from the general reserve will be a concessional contribution and count towards the members concessional contribution cap. The legislation does not contain a discretion that can be exercised by the Commissioner to allow the trustees to transfer the amount from the general reserve in one transaction without the transfer being assessed against the members concessional contribution cap.
Copyright notice
© Australian Taxation Office for the Commonwealth of Australia
You are free to copy, adapt, modify, transmit and distribute material on this website as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products).
