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Advice

Subject: Concessional and non-concessional contributions - constitutionally protected fund

Questions:

1. Do salary sacrifice contributions made to a constitutionally protected fund (CPF) count towards the concessional contributions cap for the 2011-12 income year?

2. Can you make non-concessional contributions to a CPF in excess of $150,000 without exceeding the non-concessional contributions cap in the 2011-12 income year?

Advice/Answers:

1. No.

2. Yes.

This ruling applies for the following period:

1 July 2011 to 30 June 2012

The scheme commenced on:

1 July 2011

Relevant facts:

You are under 55 years of age.

You work in both the public sector (for your government employer) and private practice [employed by your and your spouse's company (the Company)].

Your government employer makes superannuation guarantee contributions to a constitutionally protected fund (CPF) - (the Fund) which is administered by the State Government Board.

The Company makes concessional superannuation contributions for you into a Superannuation Fund with a corporate trustee.

Your have estimated gross income from your government employer and employer superannuation contributions for the 2011-12 income year.

Your estimated gross income from the Company for the 2011-12 income year is nil. You will not be providing any services for the Company from 1 July 2011.

In the 2011-12 income year you will be self-employed. You have estimated your gross income from the Company.

You intend to salary sacrifice all your income from your government employer for the 2011-12 income year in to the Fund.

You wish to make personal deductible contributions and non-concessional contributions in the 2011-12 income year without breaching the concessional contributions and non-concessional contributions caps.

You have advised that you may make the non-deductible personal superannuation contributions to the Fund or to another superannuation fund.

Relevant legislative provisions:

Income Tax Assessment Act 1997 Section 292-20

Income Tax Assessment Act 1997 Section 292-20(2)

Income Tax Assessment Act 1997 Section 292-25

Income Tax Assessment Act 1997 Subsection 292-25(1)

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

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

Income Tax Assessment Act 1997 Subsection 292-25(3)

Income Tax Assessment Act 1997 Section 292-80

Income Tax Assessment Act 1997 Section 292-85

Income Tax Assessment Act 1997 Section 292-85(2)

Income Tax Assessment Act 1997 Section 292-85(3)

Income Tax Assessment Act 1997 Section 292-90

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

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

Income Tax Assessment Act 1997 Subparagraph 292-90(2)(c)(iv)

Income Tax Assessment Act 1997 Subparagraph 292-90(2)(c)(v)

Income Tax Assessment Act 1997 Subparagraph 292-90(2)(c)(vi)

Income Tax Assessment Act 1997 Subsection 292-90(4)

Reasons for decision

Summary

Ordinarily, employer contributions and salary sacrifice contributions made to a complying superannuation fund count towards a person's concessional contributions cap. However, in the case of a constitutionally protected fund (CPF), these contributions are specifically excluded from being concessional contributions. Accordingly, any salary sacrifice contributions made on your behalf to the CPF will not count towards the concessional contributions cap.

Similarly, any personal superannuation contributions, for which you claim a tax deduction, made to the CPF will not count towards the concessional contributions cap as they are specifically excluded from being concessional contributions. However, any personal superannuation contributions, for which you claim a tax deduction, made to another complying superannuation fund that is not a CPF will count towards the concessional contributions cap.

All personal superannuation contributions, for which you will not claim a tax deduction, made to a complying superannuation fund (including a CPF) are counted towards the non-concessional contributions cap. It should be noted that employer contributions and salary sacrifice contributions made to a CPF are specifically excluded from being non-concessional contributions and, therefore, do not count towards the non-concessional contributions cap.

Detailed reasoning

Concessional contributions

From 1 July 2007, concessional contributions made to superannuation funds are subject to an annual cap. For the 2011-12 income year the annual cap is $25,000.

The concessional contributions cap will be indexed to upward movements of average weekly ordinary time earnings (AWOTE) in $5,000 increments (subsection 292-20(2) of the Income Tax Assessment Act 1997 (ITAA 1997)).

Between 1 July 2007 and 30 June 2012, a transitional concessional contributions cap will apply for people aged 50 or over. For the 2009-10 to the 2011-12 income years, as a result of changes announced in the May 2009 Budget, the annual cap is $50,000 (subsection 292-20(2) of the Income Tax (Transitional Provisions) Act 1997).

The amount of a person's concessional contributions for a financial year is determined under section 292-25 of the ITAA 1997.

Concessional contributions include employer contributions, salary sacrifice contributions and personal contributions claimed as a tax deduction by a self-employed person (subsection 292-25(2) of the ITAA 1997).

However, under paragraph 292-25(2)(c) of the ITAA 1997, the following amounts are excluded from being concessional contributions:

(i) so much of an amount that is transferred to a superannuation fund from a foreign superannuation fund and is included in the assessable income of the fund as a result of a choice made under section 305-80;

(ii) 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;

(iii) a contribution made to a constitutionally protected fund (CPF).

A CPF is defined in section 995-1 of the ITAA 1997 as a fund that is declared by the regulations to be a constitutionally protected fund.

You have estimated the amounts of superannuation contributions your employer will make and the salary sacrifice to be contributed by to the Fund which is a CPF.

As the Fund is a CPF for the purposes of the ITAA 1997, employer and salary sacrifice contributions made to the Fund are not treated as concessional contributions and are not counted towards your concessional contributions cap. Similarly, any personal superannuation contributions, for which you claim a tax deduction, made to the Fund are not treated as concessional contributions and are not counted towards your concessional contributions cap.

However, any personal superannuation contributions, for which you claim a tax deduction, made to another superannuation fund that is not a CPF will be treated as concessional contributions and are counted towards your concessional contributions cap.

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%. In addition, the amount of any excess concessional contributions for a financial year is counted towards the person's non-concessional contributions cap.

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). For the 2009-10 income year onwards the annual cap is always six times the concessional contributions cap. Therefore, for the 2011-12 income year the annual cap is $150,000.

Non-concessional contributions 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) (paragraph 292-90(2)(b)).

Non-concessional contributions do not include:

· the superannuation co-contribution (subparagraph 292-90(2)(c)(i) of the ITAA 1997);

· the amount of a contribution arising from certain structured settlements or orders for personal injuries that result in permanent incapacity, if you elected to exclude the amount before or when you made the contribution (subparagraph 292-90(2)(c)(ii) and section 292-95);

· the amount of a contribution arising from the disposal of qualifying small business assets, if you elected to exclude the amount before or when you made the contribution, up to a lifetime limit (subparagraph 292-90(2)(c)(iii) and section 292-100);

· contributions made to a CPF that would have been assessable income of the fund if the fund was a taxable superannuation fund (for example, employer contributions made to an accumulation fund that is constitutionally protected) (subparagraph 292-90(2)(c)(iv));

· contributions to a public sector superannuation scheme that are not included in the fund's assessable income because of a choice made by the scheme's trustee (sometimes called last minute contributions) (subparagraph 292-90(2)(c)(v) and section 295-180);

· a rollover or transfer of a superannuation benefit between complying funds (subparagraph 292-90(2)(c)(vi)); and

· the tax-free component of a directed termination payment (section 292-90 of the Income Tax (Transitional Provisions) Act 1997.

All personal superannuation contributions, for which you will not claim a tax deduction, made to a complying superannuation fund (including a CPF) are counted towards the non-concessional contributions cap. As noted in the dot points above, employer contributions and salary sacrifice contributions made to a CPF are specifically excluded from being non-concessional contributions and, therefore, do not count towards the non-concessional contributions cap even though they are excluded from being concessional contributions.

Accordingly, any personal superannuation contributions you make to the Fund, for which you will not claim a tax deduction, will count towards the non-concessional contributions cap.

Bring forward provisions

As a concession, to accommodate larger contributions, persons under age 65 in an income year are able to bring forward future entitlements to two years worth of non-concessional contributions. This means a person under age 65 will be able to contribute non-concessional contributions totalling $450,000 over three income years without exceeding their non-concessional contributions cap (subsections 292-85(3) and (4) of the ITAA 1997).

The bring forward will be triggered automatically when contributions in excess of the annual non-concessional contributions cap are made in an income year by a person who is under age 65 at any time in the year where a bring forward has not already commenced (subsection 292-85(3) of the ITAA 1997).

Where a bring forward has been triggered, the two future years' entitlements are not indexed.