Edited version of administratively binding advice

Authorisation Number: 1012429600315

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

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Advice

Subject: Concessional and non-concessional contributions

Question 1

Will personal contributions made to a constitutionally protected fund count towards your client's concessional contributions cap?

Advice

No.

Question 2

Will personal contributions made to a constitutionally protected fund count towards your client's non-concessional contributions cap?

Advice

No.

This advice applies for the following period:

2012-13 income year

The arrangement commences on:

1 July 2012

Relevant facts and circumstances

Your advice is based on the facts stated in the description of the scheme that is set out below. If your circumstances are significantly different from these facts, this advice has no effect and you cannot rely on it. The fact sheet has more information about relying on ATO advice.

Your client is currently over 65 years of age.

Your client is a member of a constitutionally protected fund (CPF).

Your client ceased work in the relevant income year.

You advised that for the subsequent income year, your client has met the work test for the purposes of enabling them to make personal contributions to a complying superannuation fund.

During the subsequent income year, your client is expecting to receive a substantial distribution from a discretionary trust.

You understand that under the rules which govern the CPF, your client is able to make personal superannuation contributions to the CPF. In light of this, your client intends to make a personal contribution to the fund in the subsequent income year.

Your client intends to provide a written notice to the Trustee, stating that they intend to claim a deduction for this contribution. Your client also intends to receive a notice for the subsequent  income year from the Trustee, acknowledging receipt of the notice of intent in respect of this contribution.

You have advised that a deduction for the proposed contribution will not add to or create a loss for your client in the subsequent income year.

Recently you applied for a private ruling relating to your client claiming a deduction for a personal superannuation contribution to a CPF.

A private ruling was issued confirming that your client can claim a deduction for the amount of the personal superannuation contribution to be made to the CPF in the subsequent income year.

Reasons for decision

Summary

A personal contribution made to a CPF is not a concessional or non-concessional contribution, where your client is entitled to claim a tax deduction in respect of the entire contribution.

Accordingly, that contribution does not count towards your client's concessional contributions cap, or non-concessional contributions cap.

Your client will not be subject to excess concessional or non-concessional contributions tax in respect of that contribution.

Detailed reasoning

The Taxation Administration Act 1953 (TAA), is the law that allows legally binding advice to be provided on certain laws administered by the Commissioner. Unfortunately, we are not able to provide a private ruling on an issue in relation to the concessional and non-concessional contributions caps contained in the provisions in Division 292 of the Income Tax Assessment Act 1997 (ITAA 1997), as the TAA does not allow advice to be provided in a legally binding form.

In the interests of sound administration, the Commissioner will however, provide administratively binding advice in relation to these laws and in response to the question you have raised.

Administratively binding advice is not legally binding on the Commissioner. When the time comes to assess liability to tax, the law as it then exists must be applied to the facts as established at that time. However, the ATO will stand by what is said in such advice and will not depart from it unless:

· there have been legislative changes since the advice was given

· a tribunal or court decision has affected our interpretation of the law since the advice was given, or

· for other reasons, the advice is no longer considered appropriate. For example, if the advice has been exploited in an abusive and unintended way.

Concessional contributions:

Concessional contributions are contributions made to a complying superannuation plan by or for an individual, that are included in the assessable income of a superannuation fund (subsection 292-25(2) of the ITAA 1997). Concessional contributions include:

· compulsory employer contributions;

· salary sacrifice contributions;

· contributions for which a tax deduction has been claimed (item 1 of the table in subsection 295-190(1) of the ITAA 1997).

Concessional contributions do not include:

· an amount transferred to a complying superannuation fund from a foreign superannuation fund where the former member of the foreign fund chooses that the amount be included in the assessable income of the receiving fund, rather than the member being taxed on the amount;

· a roll-over superannuation benefit that an individual is taken to receive, to the extent that it consists of an element untaxed in the fund and is not an excess untaxed roll-over amount; and

· contributions made to a CPF (subparagraph 292-25(2)(c)(iii) of the ITAA 1997).

In your client's case, as subparagraph 292-25(2)(c)(iii) of the ITAA 1997 specifically excludes contributions made to a CPF from the definition of concessional contributions, the personal deductible contribution your client intends to make in the subsequent income year is not a concessional contribution.

As the personal deductible contribution to the CPF is not a concessional contribution by virtue of subparagraph 292-25(2)(c)(iii) of the ITAA 1997, this personal deductible amount will not count towards your client's concessional contributions cap for the subsequent income year.

Non-concessional contributions:

Non-concessional contributions are generally contributions made to a complying superannuation plan in respect of the individual that are not included in the assessable income of the fund. Non-concessional contributions include:

· personal contributions for which an income tax deduction is not claimed;

· contributions a person's spouse makes to their superannuation fund account;

· transfers from foreign superannuation funds (excluding amounts included in the funds assessable income under section 295-200 of the ITAA 1997); and

· the amount of any excess concessional contributions for the financial year.

Subparagraph 292-90(2)(c)(iv) of the ITAA 1997 specifically excludes from the definition of a non-concessional contribution:

· a contribution made to a CPF (other than a contribution included in the contributions segment of your superannuation interest in the fund).

Thus it is clear, that a contribution made to a CPF is also excluded from being a non-concessional contribution, unless it forms part of the 'contributions segment of the member's superannuation interest'.

Subsection 307-220(1) of the ITAA 1997 defines the 'contributions segment of a superannuation interest' as:

· so much of the value of the interest as consists of contributions made after 30 June 2007, to the extent that they have not been and will not be included in the assessable income of the superannuation provider in relation to the superannuation plan in which the interest is held.

However, subsection 307-220(2) of the ITAA 1997 provides:

(a) in determining whether contributions are included in the contributions segment under subsection (1):

(i) disregard the taxable component of a roll-over superannuation benefit paid into the interest; and

(ii) for a superannuation plan that is a constitutionally protected fund - treat the superannuation plan as if it were not a constitutionally protected fund; and

(b) disregard section 295-180 and Subdivision 295-D.

Therefore, as required by subparagraph 307-220(2)(a)(ii) of the ITAA 1997, for the purposes of determining whether contributions are included in the contributions segment of a superannuation interest in a CPF, you must treat the superannuation plan as if it were not a CPF.

Effectively, this means that for a CPF the only contributions that will count towards the non-concessional cap (that is included in the contributions segment) are:

· contributions that would be non-concessional contributions, that is, not included in its assessable income if it was not a CPF.

Conversely, no part of a contribution that, if the fund was not a CPF, would be a concessional contribution, is included in the contributions segment.

In your client's case, if we were to treat the CPF as if it were not a CPF, a contribution for which the fund is notified that a tax deduction has been (or will be) claimed, would be included in the assessable income of the fund and therefore does not form part of your client's contributions segment. The contributions segment of your client's superannuation interest in the CPF is therefore nil.

As the personal deductible contribution your client intends to make, is not part of the contributions segment of your client's superannuation interest in the CPF, it does not count towards your client's non-concessional contributions cap for the subsequent income year.

Conclusion:

The personal deductible contribution your client intends to make in the subsequent income year will not have any excess contributions tax consequences, as that contribution does not count towards either your client's concessional contributions cap or non-concessional contributions cap.