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Edited version of administratively binding advice
Authorisation Number: 1011985503956
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Subject: Concessional contributions cap - salary sacrifice contributions to a constitutionally protected fund.
Relevant facts and circumstances
Your client is an employee who wants to salary sacrifice more than the concessional contributions cap into a constitutionally protected fund (CPF).
Your client has been a member of the CPF for over 10 years.
After the contribution your client will still be within the CPF's untaxed plan lifetime cap.
Your client's current salary sacrifice arrangement comprises a few non-superannuation items.
Your client's current employer makes concessional contributions into the CPF on your client's behalf.
Your client has made a non-concessional contribution to their self managed superannuation fund in the 2011-12 income year. Your client does not make any concessional contributions to this fund.
Your client does not intend to claim a tax deduction under section 290-150 of the Income Tax Assessment Act 1997 (ITAA 1997).
Relevant legislative provisions
Income Tax Assessment Act 1997 Subsection 292-20(2).
Income Tax Assessment Act 1997 Section 292-25.
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).
Summary
Your client's nominated superannuation fund is a constitutionally protected fund (CPF). The contributions made under the salary sacrifice agreement (SSA) are not included in your client's concessional contributions. As such, these contributions are not counted towards your client's 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 concessional contributions cap is $25,000 (subsection 292-20(2) of the Income Tax Assessment Act 1997 (ITAA 1997)). The concessional contributions cap is subject to indexation.
Between 1 July 2007 and 30 June 2012, a transitional concessional contributions cap will apply.
From 1 July 2009 until 30 June 2012, the annual cap will be $50,000 for people aged 50 or over. If a person has more than one fund, all concessional contributions made to all their funds are added together and count towards the cap.
The transitional concessional contributions cap amount of $50,000 is not indexed.
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 persons non-concessional contributions cap.
The amount of a person's concessional contributions for a financial year is determined under section 292-25 of the ITAA 1997. Subsection 292-25(2) of the ITAA 1997 provides that unless specifically excluded, they include contributions made to a complying superannuation fund by or for a person in that year, which are included in the fund's assessable income. Most commonly, these will be employer contributions (including contributions made under a SSA and personal contributions claimed as a tax deduction by an individual).
Amounts which are not concessional contributions
Most contributions that are not assessable income of the fund are not concessional contributions. Paragraph 292-25(2)(c) of the ITAA 1997 sets out amounts that are not included in a person's concessional contributions for a financial year, even though these contributions might be included in the fund's assessable income for that year.
Subparagraph 292-25(2)(c)(iii) of the ITAA 1997 excludes any contributions made to a constitutionally protected fund (CPF). This is because a CPF does not pay income tax on the contributions and earnings the CPF receives. The exclusion under this provision also applies to contributions that are made to a CPF under the SSA.
Subsection 292-25(3) of the ITAA 1997 provides that the amount of a person's concessional contributions also includes additional amounts allocated to the person by the superannuation provider. For example, additional amounts allocated to a person from a reserve can be counted towards a person's concessional contributions cap. The conditions and rules determining these amounts are specified in regulation 295-25.01 of the Income Tax Assessment Regulations 1997 (ITAR 1997).
Paragraph (c) of subregulation 295-25.01(3) of the ITAR 1997 states that a contribution made to a CPF is treated as an amount that has not been allocated by the superannuation provider in a way that is covered by subsection 292-25(3) of the ITAA 1997.
As your client's nominated superannuation fund is a CPF, both the above exclusions apply. As such, the contributions made to the fund by way of a SSA are not concessional contributions and are not counted towards your client's concessional contributions cap.
Concessional contributions to a fund other than a CPF are counted towards the concessional contributions cap
As previously noted, under subsection 292-25(2) of the ITAA 1997 concessional contributions include employer contributions, including contributions made under a SSA. Where concessional contributions are made to a complying superannuation fund other than a CPF, the contributions are counted towards your client's concessional contributions cap. Therefore, if your client makes concessional contributions to a complying fund other than a CPF, they will be counted towards their concessional contributions cap.