Edited version of administratively binding advice

Authorisation Number: 1012566250120

Subject: Excess contributions tax

Question 1

Will the payment of employer contributions to a constitutionally protected fund (CPF) be subject to excess contributions tax?

Advice

No

Question 2

Will the payment of employer contributions to a constitutionally protected fund (CPF) be subject to excess non-concessional contributions tax?

Advice

No

This advice applies for the following period

Year ending 30 June 2014

The arrangement commenced on

1 June 2013

Relevant facts and circumstances

1. Your client is currently under 55 years of age.

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

3. An Entity (the Entity) is controlled by your client and their spouse.

4. You advised that your client has derived income from part-time employment as an employee of the Entity during the 2013-14 income year.

5. The Entity is expected to derive income for the 2013-14 income year.

6. The Entity intends to make an employer contribution to the Fund for the benefit of your client.

Relevant legislative provisions

Income Tax Assessment Act 1997 Division 291

Income Tax Assessment Act 1997Subsection 291-25(2)

Income Tax Assessment Act 1997 Subparagraph 291-25(2)(c)(iii)

Income Tax Assessment Act 1997 Section 290-90

Income Tax Assessment Act 1997 Subparagraph 292-90(2)(c)(iv)

Income Tax Assessment Act 1997 Subsection 295-190(1).

Income Tax Assessment Act 1997 Section 295-260.

Income Tax Assessment Act 1997 Subsection 307-220(1).

Income Tax Assessment Act 1997 Subsection 307-220 (2).

Taxation Administration Act 1953 Section 357-55

Reasons for decision

Issue 1

Summary

7. An employer contribution made to a constitutionally protected fund is not a concessional or non-concessional contribution. Accordingly, that contribution does not count towards either your client's concessional contributions cap, or their non-concessional contributions cap.

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

Detailed reasoning

9. The Taxation Administration Act 1953 (TAA) 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.

10. 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.

11. 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

12. Concessional contributions, for the 2013-14 income year and later financial years, is defined in Division 291 of the ITAA 1997. This division replaces former subdivision 292-B.

13. 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 provider (subsection 291-25(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 constitutionally protected fund (CPF) (subparagraph 291-25(2)(c)(iii) of the ITAA 1997).

14. In your client's case, as subparagraph 291-25(2)(c)(iii) of the ITAA 1997 specifically excludes contributions made to a CPF from the definition of concessional contributions, the proposed employer contribution the Entity intends to make for your client in the 2013-14 income year is not a concessional contribution.

15. As the proposed employer contribution to the CPF is not a concessional contribution by virtue of subparagraph 291-25(2)(c)(iii) of the ITAA 1997, this amount will not count towards your client's concessional contributions cap for the 2013-14 income year.

Non-concessional contributions

16. Non-concessional contributions are generally contributions made to a complying superannuation plan in respect of a member 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.

17. 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 constitutionally protected fund (other than a contribution included in the contributions segment of your superannuation interest in the fund).

18. 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'.

19. 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.

20. 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.

21. 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.

22. 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 if not made to a CPF.

23. 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.

24. In this case, there is no indication that your client intends to make any personal superannuation contributions to the CPF. The contributions to be made are employer contributions.

Conclusion:

25. The proposed employer contributions to be made to the CPF in the 2013-14 income year will not have any excess contributions tax consequences, as those contributions do not count towards either your client's concessional contributions cap or their non-concessional contributions cap.