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Edited version of administratively binding advice
Authorisation Number: 1011948111690
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Subject: Concessional and non-concessional contributions
Questions:
1. Is the amount paid by a related private company to the self managed superannuation fund during the 2007-08 income year a concessional contribution?
2. Is the amount paid by a related private company to the self managed superannuation fund during the 2007-08 income year a non-concessional contribution?
Advice/Answers:
1. Yes.
2. Yes, to the extent it exceeds the concessional contribution cap in the 2007-08 income year.
This ruling applies for the following period:
1 July 2007 to 30 June 2008
The scheme commenced on:
1 July 2007
Relevant facts:
Your client is under 55 years of age.
Your client is a shareholder in a company (the Company).
In the 2006-07 income year your client received a PAYG payment summary from the Company.
In the 2006-07 income year the Company sold its business and applied the small business CGT concessions in calculating its net capital gain.
In the 2007-08 income year the Company made a payment to your client's superannuation fund (the Fund). This transaction was recorded as a CGT small business retirement exemption contribution.
In the 2007-08 income year your client did not receive a PAYG payment summary from the Company.
The constitution of the Company states regarding remuneration of directors that the directors are to be paid the remuneration that the Company determines by resolution. Further it states that the Company determines by resolution only the total remuneration to be paid to the directors and that the directors determine how the total remuneration is divided among them. It also states that the remuneration of directors accrues daily.
There are no minutes recording a resolution at a general meeting authorising a payment to your client in the 2007-08 income year.
When the Company was being liquidated, the liquidator determined that the Company did not meet the conditions to apply the small business CGT concessions.
As a result the Company's income tax returns for the 2006-07 and 2007-08 were amended resulting in additional tax payable.
In addition, the financial statements of the Company were amended to reflect the superannuation contribution as a debit to your client's loan account.
The Fund will be required to amend its income tax returns for the 2007-08 and 2008-09 income years.
Assumptions:
None.
Relevant legislative provisions:
Income Tax Assessment Act 1997 Section 292-25
Income Tax Assessment Act 1997 Subsection 292-25(2)
Income Tax Assessment Act 1997 Section 292-90
Income Tax Assessment Act 1997 Subsection 292-91(1)
Income Tax Assessment Act 1997 Section 295-200
Income Tax Assessment Act 1997 Subsection 295-190(1)
Income Tax Assessment Act 1997 Section 295-160
Income Tax Assessment Act 1997 Section 290-60.
Income Tax Assessment Act 1997 Section 290-60(1)
Income Tax Assessment Act 1997 Section 290-60(2).
Income Tax Assessment Act 1997 Section 290-70.
Income Tax Assessment Act 1997 Section 290-75.
Income Tax Assessment Act 1997 Section 290-80.
Income Tax Assessment Act 1997 Section 995-1.
Income Tax (Transitional Provisions) Act 1997 Section 292-90.
Superannuation Guarantee (Administration) Act 1992 Subsection 12(11).
Reasons for decision
Summary
The amount of the superannuation contribution made by the Company in respect of your client to the Superannuation Fund is a concessional contribution.
The remainder is a non-concessional contribution.
Detailed reasoning
Concessional contributions
Concessional contributions are defined in section 292-25 of the Income Tax Assessment Act 1997 (ITAA 1997).
Subsection 292-25(2) of the ITAA 1997 states:
A contribution is covered under this subsection if:
(a) it is made in the financial year to a complying superannuation plan in respect of you; and
(b) it is included in the assessable income of the superannuation provider in relation to the plan, or, by way of a roll-over superannuation benefit, in the assessable income of a complying superannuation fund or RSA provider in the circumstances mentioned in subsection 290-170(5) (about successor funds); and
(c) it is not any of the following:
(a) an amount mentioned in subsection 295-200(2);
(ii) an amount mentioned in item 2 of the table in subsection 295-190(1);
(iii) a contribution made to a constitutionally protected fund.
We will consider these conditions one by one.
In this case as the superannuation contribution has been made by the Company in respect of your client to your client's superannuation fund (the Fund). Therefore paragraph (a) has been satisfied.
Under Item 1 in the table in section 295-160 of the ITAA 1997, the assessable income of a complying superannuation fund includes a contribution to provide superannuation benefits for someone else.
Therefore the contribution made by the Company for your client will be included in the assessable income of the Fund. As a result paragraph (b) has been satisfied.
In applying paragraph (c) to the facts, subsection 295-200(2) of the ITAA 1997 deals with transfers from foreign superannuation funds and subsection 295-190(1) of the ITAA 1997 deals with personal superannuation contributions. The contribution made by the Company to the Fund is none of these. The Fund is also not a constitutionally protected fund. Consequently paragraph (c) has also been satisfied.
As all the above conditions have been satisfied, the contribution it is a concessional contribution.
Concessional contributions cap
In the 2007-08 income year the concessional contributions cap for people aged under 50 years is $50,000. Therefore $50,000 out of the total contribution will be a concessional contribution. The remainder will be excess concessional contributions as stated in section 292-20(1) of the ITAA 1997.
Non-concessional contributions
Non-concessional contributions are dealt with in section 292-90 of the ITAA 1997.
Section 292-90(1) states:
The amount of your non-concessional contributions for a *financial year is the sum of:
(a) each contribution covered under subsection (2); and
(aa) each amount covered under subsection (4); and
(b) the amount of your excess concessional contributions (if any) for the financial year.
Your client's excess concessional contributions will be non-concessional contributions in accordance with paragraph 292-90(1)(b).