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Ruling

Subject: Deduction for personal contributions made to a foreign pension scheme

Questions

1. Can you claim a deduction in respect of personal contributions made to a Foreign (foreign) pension scheme for the 2009-10 income year under section 290-150 of the Income Tax Assessment Act 1997?

2. Can the personal contributions you made to the FOREIGN pension scheme be included in the undeducted purchase price of the pension payable from the pension scheme under section 27H of the Income Tax Assessment Act 1936?

Answers

1. No.

2. Yes.

This ruling applies for the following periods

Year ended 30 June 2010

Year ended 30 June 2011

The scheme commenced on

1 July 2009

Relevant facts

You were 65 years of age when the pension commenced.

In the 2009-10 income year you made contributions to an entity (the Fund) in order to receive a retirement pension.

The Fund is established overseas and its central management and is outside of Australia.

In the 2009-10 income year you made contributions to the Fund in order to receive a pension.

The contributions were made solely by you and do not include any contributions by your employer or any other person under an agreement to which your employer is a party for the purpose of providing you or your dependants with superannuation benefits.

The pension is not a fixed term pension and it is payable for life. A lump sum is not payable on your death. Thus the residual capital value of your pension is NIL.

You are not married and you do not have a partner. You have advised that in your current circumstances your pension is not a reversionary pension.

You did not receive your pension following the death of another person.

No other person is entitled to a share of your pension.

Relevant legislative provisions

Income Tax Assessment Act 1936 Subsection 27A(1).

Income Tax Assessment Act 1936 Section 27H.

Income Tax Assessment Act 1936 Subsection 27H(2).

Income Tax Assessment Act 1936 Subsection 27H(3).

Income Tax Assessment Act 1936 Subsection 27H(3A).

Income Tax Assessment Act 1936 Subsection 27H(5).

Income Tax Assessment Act 1997 Section 290-150.

Income Tax Assessment Act 1997 Subsection 290-150(2).

Income Tax Assessment Act 1997 Section 290-155.

Income Tax Assessment Act 1997 Section 290-160.

Income Tax Assessment Act 1997 Section 290-165.

Income Tax Assessment Act 1997 Section 290-170.

Income Tax Assessment Act 1997 Section 295-95.

Income Tax Assessment Act 1997 Subsection 295-95(2).

Income Tax Assessment Act 1997 Subsection 995-1(1).

Superannuation Industry (Supervision) Act 1993 Section 10.

Superannuation Industry (Supervision) Act 1993 Section 42.

Superannuation Industry (Supervision) Act 1993 Paragraph 42(1)(a).

Reasons for decision

Summary

A person can claim a deduction in respect of personal superannuation contributions provided all the legislative requirements are met. One requirement is the 'complying superannuation fund' condition.

The entity (the Scheme) into which you made contributions during the 2009-10 income year is a not complying superannuation fund. Therefore the 'complying superannuation fund' condition is not satisfied. Consequently you are not entitled to claim a deduction for the top up contributions you made in this income year.

The contributions made by you to the Scheme forms part of the undeducted purchase price (UPP) of the foreign pension.

Detailed Reasoning

Personal contributions made in the 2009-10 income year

A person can claim a deduction for personal contributions made to a superannuation fund for the purpose of providing superannuation benefits for themselves under section 290-150 of the Income Tax Assessment Act 1997 (ITAA 1997).

In the 2009-10 income year you made contributions to the Scheme overseas in order to receive a pension.

However, subsection 290-150(2) of the ITAA 1997 provides that the conditions in sections 290-155, 290-160, 290-165 and 290-170 must all be satisfied before a person can claim a deduction for the contributions made in that income year.

One of these conditions is the 'complying superannuation fund' condition specified in section 290-155 of the ITAA 1997. Section 290-155 of the ITAA 1997 states that:

If a contribution is made to a superannuation fund, it must be a complying superannuation fund for the income year of the fund in which you made the contribution.

The Scheme is not a complying superannuation fund

A complying superannuation fund is an entity that is regulated under the Superannuation Industry (Supervision) Act 1993 (SIS Act), and which complies with all the applicable requirements of the SIS Act. One of these requirements is specified in paragraph 42(1)(a) of the SIS Act, which states:

An entity is a complying superannuation fund in relation to a year of income … if:

(a) either:

(i) the entity was a resident regulated superannuation fund at all times during the year of income when the entity was in existence; or

(ii) the entity was a resident regulated superannuation fund at all times during the year of income when the entity was in existence other than a time, before it became a resident regulated superannuation fund, when the entity was a resident approved deposit fund; and

…

A resident regulated superannuation fund is defined in section 10 of the SIS Act as meaning:

… a regulated superannuation fund that is an Australian superannuation fund within the meaning of the Income Tax Assessment Act 1997.

An Australian superannuation fund is defined in subsection 995-1(1) of the ITAA 1997 as having the meaning given by section 295-95 of the ITAA 1997.

Subsection 295-95(2) of the ITAA 1997 defines an Australian superannuation fund as follows:

A superannuation fund is an Australian superannuation fund at a time, and for the income year in which that time occurs, if:

(a) the fund was established in Australia, or any asset of the fund is situated in Australia at that time; and

(b) at that time, the central management and control of the fund is ordinarily in Australia; and

(c) at that time either the fund had no member covered by subsection (3) (an active member) or at least 50% of:

(i) the total market value of the funds assets attributable to superannuation interests held by active members; or

(ii) the sum of the amounts that would be payable to or in respect of active members if they voluntarily ceased to be members;

is attributable to superannuation interests held by active members who are Australian residents.

In order for the Scheme to be considered a complying superannuation fund, it must satisfy the requirements set out in subsection 295-95(2) of the ITAA 1997 and accordingly be an Australian superannuation fund as defined in subsection 995-1(1).

It should be noted that an entity that is established outside of Australia and has its central management and control outside of Australia would not qualify as a regulated superannuation fund under the provisions of the SIS Act.

It is evident that the Scheme, which is established overseas, is established outside of Australia. Similarly, the central management and control of the Scheme is outside of Australia. As such, the Scheme is not an Australian superannuation fund, because it does not satisfy the requirements set out in subsection 295-95(2) of the ITAA 1997.

Because the Scheme is not an Australian superannuation fund:

· it is not a resident regulated superannuation fund as defined in section 10 of the SIS Act,

· it does not qualify as a regulated superannuation fund in accordance with the SIS Act, and

· it does not satisfy the requirements specified in paragraph 42(1)(a) of the SIS Act for it to qualify as a complying superannuation fund

Therefore, the Scheme is not a complying superannuation fund in relation to the 2009-10 income year.

You do not satisfy the complying superannuation fund condition

As discussed above, the entity into which you made contributions during the 2009-10 income year is a not complying superannuation fund. Therefore, you do not satisfy the complying superannuation fund condition. This means you do not satisfy all the required conditions in subdivision 290-C of the ITAA 1997 to claim a deduction in respect of the top up contributions you made to the Fund in this income year.

As noted previously, the conditions in sections 290-155, 290-160, 290-165 and 290-170 of the ITAA 1997 must all be satisfied before you can claim a deduction for the contributions you made in the 2009-10 income year. In this case, you do not satisfy the condition prescribed in section 290-155 of the ITAA 1997. As this condition has not been satisfied, it is not necessary to determine whether you have satisfied the other conditions set out in sections 290-160, 290-165 and 290-170.

Consequently, you cannot claim a deduction in respect of your contributions.

Undeducted purchase price

Subsection 27H(2) of the Income Tax Assessment Act 1936 (ITAA 1936) sets out the formula for calculating the deductible amount of an annuity that is excluded from assessable income. The deductible amount calculated by this formula requires the calculation of the undeducted purchase price (UPP) of the annuity.

If the Commissioner considers that the deductible amount calculated under subsection 27H(2) of the ITAA 1936 is inappropriate, he may substitute another amount.

The legislation is clear and only a member's contributions to a superannuation fund will qualify as forming the purchase price of a pension paid by a superannuation fund (foreign or domestic).

The contributions made by you to Scheme forms part of the UPP of the foreign pension. This is because the contributions were made solely by you and does not include any contributions by your employer or any other person under an agreement to which your employer is a party for the purpose of providing you or your dependants with superannuation benefits.