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Ruling

Subject: Deduction for Personal Superannuation Contributions

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 (ITAA 1997) after a lump sum superannuation benefit has been paid from a superannuation interest?

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 has a superannuation account in a complying superannuation fund (the fund).

Your client made a number of personal superannuation contributions into the fund during the 2008-09 income year.

Your client, who is over age 65, made the contributions assuming that dividends or a capital gain would have been received from the winding up of a company, and that the contributions would have been deductible.

In late July 2009, your client lodged with the fund trustee a notice of intent to claim a deduction for each personal contribution. In a letter sent to your client a couple of days later, the fund acknowledged that it had received a valid deduction notice for these personal contributions.

Your client's superannuation account was reduced by income tax payable by the fund in relation to the personal contributions covered by the deduction notice.

Shortly afterwards, your client withdrew a superannuation lump sum from the superannuation account. A Final Benefit Statement issued by the fund trustee shows the entire lump sum as a taxable component with no tax-free component. After the withdrawal of the lump sum superannuation benefit, the balance of your client's superannuation interest in the fund was NIL.

Several months later, your client lodged notice of intent to claim or vary a deduction for personal superannuation contributions for the 2008-09 income year with the fund trustee. In this notice your client stated:

· an intent to reduce the tax deduction your client had intended to claim in respect of the personal contributions covered by the original section 290-170 notice to NIL, and

· that this notice was varying the earlier section 290-170 notice your client had lodged for these contributions.

A couple of weeks later your client's income tax return for the 2008-09 income year was lodged with the ATO. Your client did not claim a deduction for personal superannuation contributions in their income tax return for this income year.

In a letter sent to your client in early June 2010, the fund referred to your client's variation notice.

In that letter the fund advised your client that the legislation regulating the change of contributions had changed as of 1 July 2007, and that a member is no longer able to change a contribution that has been used to commence an income stream. Your client was further advised that they were unable to action the variation notice.

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 Subsection 290-180(3A)

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

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

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

Reasons for decision

Summary

Your client's original notice of intent to claim a deduction, for personal contributions made in the 2008-09 income year, was valid.

Your client had no personal contributions in the fund after the superannuation lump sum was paid from the superannuation interest.

Your client cannot vary this notice for two reasons:

· your client was no longer a member of the fund after the superannuation lump sum was withdrawn, and

· the fund trustee had ceased to hold the contributions at the time the variation notice was given.

Detailed reasoning

Personal superannuation contributions made in the 2008-09 income year

Where all the conditions in Subdivision 290-C of the 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 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 subsection 290-180(3A) of the ITAA 1997 concerning whether, at the time the variation notice was given:

· your client was a member of the fund (paragraph 290-180(3A)(a)), and

· the personal contributions covered by the original notice were held by the fund trustee (paragraph 290-180(3A)(b)).

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

As noted above, subsection 290-180(3A) of the ITAA 1997 provides that a person cannot vary a valid section 290-170 notice where:

· the person is no longer a member of the fund,

· the fund trustee no longer holds the contribution, or

· 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 paragraph 290-170(2)(c) of the ITAA 1997. In this respect, paragraph 69 of TR 2010/1 discusses the factors to be considered in the interpretation of paragraph 290-170(2)(c) of the ITAA 1997, 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.

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

Therefore, the Commissioner considers that 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, when the notice is given, the person is no longer a member of the fund or the superannuation provider no longer holds the contribution.

The requirements of subsection 290-180(3A) of the ITAA 1997 are not satisfied

Your client withdrew a superannuation lump sum from the fund in mid 2009. After the withdrawal of the lump sum, the balance of your client's superannuation interest in the fund was NIL.

Subsequently, your client lodged notice of intent to claim or vary a deduction for personal superannuation contributions for the 2008-09 income year with the fund trustee.

In lodging this notice, your client intended to vary the valid notice which had been previously lodged for the personal contributions. In this notice your client stated an intent to reduce the tax deduction your client had intended to claim in respect of the contributions to NIL.

In a letter sent to your client, the fund advised that they were unable to action the variation notice.

In view of the above and paragraph 290-180(3A)(b) of the ITAA 1997, your client's valid notice of intent covering these contributions cannot be varied. This is because the trustee no longer held the contributions at the time the variation notice was given.

It should be noted that a superannuation benefit paid from a superannuation interest may influence whether a variation notice is effective. In this light, the Commissioner explains in paragraph 272 of TR 2010/1 that any superannuation lump sum paid from the interest reduces the contributions held by the superannuation provider.

Your client had no personal contributions in the fund after the withdrawal of the superannuation lump sum. Hence at the time your client lodged the variation notice:

· your client had ceased to be a member of the fund, and

· the fund trustee had ceased to hold these personal contributions.

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

Your client's valid section 290-170 notice cannot be varied

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 covering the contributions your client made during the final quarter of the 2008-09 income year.

Therefore, the amount of the deduction stated in the original notice of intent, 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.

Request for a refund of tax deducted from the personal contributions

Your client is also requesting that the income tax deducted in respect of the personal contributions be refunded.

In this case, income tax was deducted from your client's superannuation account. Most of this income tax was in relation to the personal contributions covered by the original valid notice.

Even though the effect of the tax paid by the fund was to reduce your client's account balance, your client is not personally liable for the income tax payable by the fund on these personal contributions in the 2008-09 income year. It is not tax payable by your client, but rather tax payable by the fund.

Certain personal contributions are included in the assessable income of a superannuation fund in accordance with the table in subsection 295-190(1) of the ITAA 1997. Item 1 of the table shows that a personal contribution covered by a valid and acknowledged notice under section 290-170 of the ITAA 1997 is assessable income of a complying superannuation fund.

Accordingly, the contributions covered by your client's valid notice represent assessable income of the fund under subsection 295-190(1) in the 2008-09 income year. This means that the tax paid on these contributions is a tax liability payable by the fund and not by your client.

Refunds of income tax arise from an assessment, or amended assessment, made in relation to the income tax return of the taxpayer who paid the tax. Therefore, a refund of tax cannot be made without an amendment being made to a taxpayer's return. Further, an amendment to a tax return can only be made in respect of the relevant provisions of the income tax legislation.

Accordingly, a refund of the tax paid on your client's personal contributions can only result from an amendment to the income tax return of the fund. Further, there are no provisions in the income tax legislation for tax paid by a superannuation fund to be refunded directly to a member.