Edited version of administratively binding advice

Authorisation Number: 1012454123536

Advice

Question

Will the Commissioner make a written determination under section 292-465 of the Income Tax Assessment Act 1997 (ITAA 1997) if you make further personal (non-concessional) contributions in the 2012-13 income year without satisfying the work test?

Answer

No, please see Reasons for decision below.

This advice applies for the following period:

Year ending 30 June 2013

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.

· You turned 65 years of age in the income year.

· You attempted to consolidate your investments held outside of superannuation into one superannuation account before your 65th birthday.

· You received amounts from three investments before your 65th birthday and contributed them to your superannuation fund.

· You received amounts from two investments after your 65th birthday and have not contributed these to your superannuation account.

· You have not triggered the bring-forward provisions in any previous income year.

Relevant legislative provisions

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

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

Income Tax Assessment Act 1997 Subsection 292-85(4)

Income Tax Assessment Act 1997 Section 292-465

Superannuation Industry (Supervision) Regulations 1994 regulation 7.01

Superannuation Industry (Supervision) Regulations 1994 regulation 7.04

Summary

You have requested that the Commissioner allow you to make a further contribution after you have turned 65 years of age but still within the income year in which you turned 65 years of age.

The only discretion that the Commissioner has in respect of non-concessional contributions is to either disregard or to allocate to another year all or part of your non-concessional contributions for an income year.

As your case does not involve any contributions being disregarded or reallocated the discretion cannot be exercised.

You have made personal superannuation contributions to your superannuation fund in the 2012-13 income year. You propose to contribute a further amount to your superannuation fund by the end of the 2012-13 income year. Your total personal contributions for the 2012-13 income year will be in excess of $150,000.

As you were under age 65 during the 2012-13 income year you are eligible, under the 'bring forward' provisions, to make non-concessional contributions of up to $450,000 in the 2012-13 income year.

However, as you have now turned 65, regulation 7.04(1) of the Superannuation Industry (Supervision) Regulations 1994 (SISR) prohibits your fund from accepting future non-concessional contributions unless you meet the work test.

Reasons for decision

The only discretion that the Commissioner has in respect of non-concessional contributions is to either disregard or to allocate to another year all or part of your non-concessional contributions for an income year.

Before exercising the discretion, the Commissioner must be satisfied that 'special circumstances' exist to disregard or allocate an amount of your contributions and that the making of the determination is consistent with the object of excess contributions tax.

By definition, most circumstances are not 'special circumstances'. Australia's courts have made it clear that 'special circumstances' are limited to circumstances that make a case different from the ordinary or usual case. Circumstances are only special if the ordinary application of the law would provide a result that is manifestly unjust, unfair or otherwise inappropriate. We must apply the same approach as adopted by the courts when we make our decisions.

When making a decision to issue a determination to disregard or allocate contributions for excess contributions tax purposes, the Commissioner may have regard to whether:

· a contribution made in the relevant income year would be more appropriately allocated to another year

· it was reasonably foreseeable when a relevant contribution was made, that the individual would have excess concessional and/or non-concessional contributions for the relevant year

· there are any other relevant matters.

In terms of whether it was reasonably foreseeable when a relevant contribution was made that this would result in exceeding a contributions cap, what is reasonably foreseeable has to be determined objectively on a case-by-case basis. It doesn't involve what an individual actually foresaw at the time a contribution was made but instead requires considering what an individual reasonably could have foreseen in their circumstances.

Law Administration Practice Statement PS LA 2008/1 The Commissioner's discretion to disregard or reallocate concessional and non-concessional contributions for a financial year provides guidance to Australian Taxation Office (ATO) staff in the exercise of the Commissioner's discretion contained in section 292-465 of the ITAA 1997. The Administrative Appeals Tribunal (AAT) has confirmed the Commissioner's explanation of special circumstances in PS LA 2008/1 is consistent with the view of the AAT in its decisions (McMennemin v. FC of T [2010] AATA 573 and Naude v. Commissioner of Taxation [2012] AATA 130).

Non-concessional contributions cap

Subsection 292-85(2) of the ITAA 1997 provides that non-concessional contributions made to a complying superannuation fund are subject to an annual cap. The non-concessional contributions cap for the 2012-13 income year 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 their superannuation fund account; and

· transfers from foreign superannuation funds (excluding amounts included in the fund's assessable income).

Some contributions are specifically excluded from being non-concessional contributions. These include:

· a Government co-contribution;

· a contribution arising from a structured settlement or an order for personal injury;

· a contribution relating to some capital gains tax (CGT) small business concessions to the extent that it does not exceed the CGT cap amount ($1,000,000 indexed annually) when it is made; and

· a roll-over superannuation benefit.

The bring-forward provisions

Subsections 292-85(3) and (4) of the ITAA 1997 provide that to accommodate larger contributions, persons who are under age 65 at any time during an income year are able to 'bring forward' future entitlements equal to two years worth of non-concessional contributions. This means a person under age 65 in the 2012-13 income year is able to contribute non-concessional contributions totalling $450,000 over three income years without exceeding their non-concessional contributions cap.

Subsection 292-85(3) of the ITAA 1997 provides that 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.

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

Conditions for fund accepting contributions

Subregulation 7.04(1) of SISR provides that a fund may accept contributions for a member as follows:

· under 65 - no restrictions on contributions that can be accepted

· 65 to under 70 - fund can accept mandated employer contributions, and if the member has been gainfully employed on at least a part time basis (the work test) during the financial year in which the contribution made then non-mandated employer and member contributions may be accepted

· 70 to under 75 - mandated employer contributions, and if the work test is met, non-mandated employer and personal member contributions

· 75 and over - mandated employer contributions.

Gainfully employed on at least a part time basis (the Work Test)

Subregulation 7.01(3) of the SISR defines gainfully employed for the purposes of Part 7 of the SISR as:

A person is gainfully employed on a part time basis during a financial year if the person was gainfully employed for at least 40 hours in a period of not more than 30 consecutive days in that financial year.

Once you turn 65 years of age you must meet the work test for your fund to accept any non-concessional contributions for you.

Application of the law to the facts provided

Your non-concessional contributions cap is $150,000 for the 2012-13 income year.

You have contributed an amount to your superannuation fund in the 2012-13 income year and propose to contribute a further amount to the superannuation fund by the end of the 2012-13 income year. Your total personal contributions for the 2012-13 income year will exceed $150,000.

As you have been under 65 during the 2012-2013 income year you are able to utilise the 'bring forward' provisions under subsections 292-85(3) and (4) of the ITAA 1997 provided the fund is able to accept the contribution.

Your cap for the 2012-13 income year is therefore $450,000.

You propose to contribute a further amount to your superannuation fund by the end of the 2012-13 income year.

As you have now turned 65 years of age, regulation 7.04(1) of SISR prohibits your fund from accepting future contributions unless you meet the work test.