Edited version of private ruling

Authorisation Number: 1011713702807

This edited version of your ruling will be published in the public Register of private binding rulings after 28 days from the issue date of the ruling. The attached private rulings fact sheet has more information.

Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. Contact us at the address given in the fact sheet if you have any concerns.

Ruling

Subject: Structured settlement payment for personal injuries

Question:

Does the 90 day period a person is allowed by subparagraph 292-95(1)(b)(i) of the Income Tax Assessment Act 1997 to make a non-concessional superannuation contribution from a court ordered personal injuries payment commence when a payment is made to the person's legal representative?

Answer:

No. The 90 day period commenced when the payment was made to the Senior Master.

This ruling applies for the following period:

Year ended 30 June 2011

The scheme commenced on:

1 July 2010

Relevant facts:

Your client is under 55 years of age.

You client suffered an injury few years ago.

Proceedings were commenced in a court (the Court) in respect of your client's injuries.

An order was made by the Court that the defendants were required to pay a specific amount to the court.

On the same day as the court order, the defendants lodged an appeal to a Court of Appeal to overturn the decision made in the Court or in the alternative, to remit the matter to the Court for a new trial to be conducted.

The monies were paid into court by the defendants approximately one month after the order was made, despite the Notice of Appeal having been given by the defendants. This payment was made over six months ago.

The appeal was subsequently discontinued by the defendants.

All monies paid into court under an order of the Court or under any act or rules is to be held by an administrator appointed by the Court.

The initial monies for the taxpayer's benefits were pooled in a capital guaranteed fund (the initial fund). Later on, the administrator can invest the monies into other funds for the benefits of your client.

Funds in the other funds are invested in a range of 'blue chip' Australian equities providing income and growth. Although the other funds offers capital growth over time it carries the risk of not being capital guaranteed as in the initial fund.

The applicant advises that an amount has been released from the settlement monies to be paid to the solicitors for disbursements. The solicitors have yet to submit a claim for legal costs. The applicant expects this matter not to be resolved for another year or so. Carer payments for the taxpayer are presently being worked out for his lifetime care. Presently, a specific amount per week has been released to cover immediate carer payments.

Currently Centrelink benefits are being claimed on behalf of the taxpayer.

It is proposed that some of the settlement monies be contributed to a superannuation fund. However, the applicant is unable to confirm the amount as the decision of the quantum of the superannuation contribution will be decided by the administrator.

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

Relevant legislative provisions:

Income Tax Assessment Act 1997 Section 292-90.

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

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 Subparagraph 292-95(1)(b)(i)

Reasons for decision

Summary

For the purposes of subparagraph 292-95(1)(b)(i) of the Income Tax Assessment Act 1997 'the day of receipt of the payment from which the contribution is made' is the day the court released the money to the Senior Master who, as your client's legal personal representative, was the person entitled to receive the payment pursuant to the relevant legislation that existed at the time.

Detailed reasoning

Subparagraphs 292-90(2)(c)(ii) and 292-95(1)(b)(i) of the Income Tax Assessment Act 1997 (ITAA 1997) exempt certain contributions made from a person's personal injury compensation from the person's non-concessional contributions cap. This means that a person may contribute proceeds of a personal injuries settlement or court-ordered compensation payment into superannuation without breaching the non-concessional contributions cap.

To exempt a contribution made from the proceeds of a court-ordered compensation payment, subsection 292-95(1)(b) of the ITAA 1997 requires that the contribution be made to a superannuation fund within 90 days of the payment being received or the structured settlement or order coming in effect, whichever is later.

In this case, it appears no superannuation contribution has been made within either 90 days of the court order or 90 days of the amount being received by the court.

The day of receipt of the payment referred to in subparagraph 292-95(1)(b)(i) of the ITAA 1997 is the day upon which the person who is entitled to the payment under the court order of settlement receives the payment. The person who is entitled to the payment includes an injured person's legal personal representative.

In this case, your client's legal personal representative is the administrator appointed by the Court. You advised that the administrator will administer the funds until the death of your client, in accordance with the relevant legislation under the Act and also relevant section of the Guardianship and Administration Act 1986 (GAA). The administrator is the ultimate recipient of the compensation monies on behalf of your client, and may invest those monies in accordance with relevant section of the GAA. The existence of the 90 day limit on the exemption from the non-concessional contributions cap may indeed be a 'special reason' appropriate for consideration by the administrator for the purposes of the Act.

You have not provided any legislative basis for their claim that the 90 day period should be delayed with respect to the appeal, subsequently withdrawn by the defendants in the court case. The Commissioner of Taxation has also not been able to ascertain any legislative basis for delaying the administrator's responsibilities with respect to the monies held in trust by them on behalf of your client in the event of an appeal.

In this case, the court ordered the payment which was received by the court a month later. As this payment was made over six months ago, ninety days after the later of these two dates was over three months ago.

Although your client appears to have failed to make a contribution within the time required to qualify for an exemption from the non-concessional contributions cap, he may still make a contribution up to the non-concessional cap amount into a superannuation fund.