Edited version of your written advice

Authorisation Number: 1012706742365

Advice

Subject: Contributions arising from compensation for personal injuries

Question

In this case, does the 90 day period a person is allowed by subparagraph 292-95(1)(b)(i) of the Income Tax Assessment Act 1997 (ITAA 1997) to make a non-concessional superannuation contribution from a court ordered personal injuries payment, commence when the amount is paid from the NSW Trustee and Guardian to a court appointed private manager?

Answer

No.

This advice applies for the following period:

Year ending 30 June 20XX

Relevant facts and circumstances

Your client (the Taxpayer) suffered an injury as a result of an accident.

A personal injury claim in relation to the Taxpayer was settled out of court in the form of a written agreement and was subsequently endorsed by the District Court of New South Wales (NSW).

As the Taxpayer was a minor, the net settlement monies in respect of the Taxpayer's personal injury claim (the Settlement Funds) were paid into the District Court of NSW.

Some months later, a summons was filed with the NSW Supreme Court to:

• declare, in accordance with paragraph 41(1)(a) of the NSW Trustee and Guardian Act 2009, that the Taxpayer is incapable of managing their affairs;

• order that the Taxpayer's estate be subject to management under the NSW Trustee and Guardian Act 2009;

• order that, pending determination of the application for appointment of a private manager (the Private Manager) as a manager of the Taxpayer's estate or until a further order, the NSW Trustee and Guardian (the NSW Trustee) be appointed as receiver and manager of the Taxpayer's estate; and

• order that the NSW Trustee may make an application to the Court for the payment of the whole, or part, of the Settlement Funds held by the Court.

Subsequently, the NSW Supreme Court declared the Taxpayer to be a protected person and appointed the NSW Trustee as the interim financial manager of the Taxpayer's estate.

The Settlement Funds were subsequently paid from the NSW Supreme Court to the NSW Trustee.

Several months later, the Supreme Court of NSW made a Financial Management Order, with several declarations, orders and directions, including:

• that the previous Order made appointing the NSW Trustee receiver and manager of the Taxpayer's estate be revoked;

• that the Private Manager be appointed as manager of the Taxpayer's estate, subject to the orders and directions of the NSW Trustee; and

• that as soon as practicable, the NSW Trustee transfer the Taxpayer's estate to the control and management of the Private Manager.

The NSW Trustee issued Directions and Authorities pursuant to Part 4.5 Division 2 of the NSW Trustee and Guardian Act 2009 to the Private Manager concerning the management of the Taxpayer's estate as 'the manager'.

The Settlement Funds held by the NSW Trustee were then released to the Private Manager.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 292-80

Income Tax Assessment Act 1997 Section 292-90

Income Tax Assessment Act 1997 Paragraph 292-90(2)

Income Tax Assessment Act 1997 Section 292-95

Income Tax Assessment Act 1997 Subsection 292-95(1)

Income Tax Assessment Act 1997 Paragraph 292-95(1)(b)

Income Tax Assessment Act 1997 Subparagraph 292-95(1)(b)(i)

Income Tax Assessment Act 1997 Subsection 292-95(3)

Summary

In this case, the 'date of the receipt of the payment from which the contribution is made' is the day the Settlement Funds were received by the NSW Trustee who, as the Taxpayer's legal representative, was entitled to receive the payment.

There is no discretion under section 292-95 of the ITAA 1997, or elsewhere in the Act, that allows the Commissioner to extend the period beyond 90 days after the day the NSW Trustee received the Settlement Funds. Therefore, to be excluded from the Taxpayer's non-concessional contributions for the relevant financial year, the contribution had to be made within 90 days after the Settlement Funds were received by the NSW Trustee.

Detailed reasoning

In accordance with section 292-80 of the ITAA 1997, where a person's non-concessional contributions for a financial year exceed the non-concessional contributions cap for the financial year, the person is liable to excess non-concessional contributions tax. This effectively eliminates concessional tax treatment by imposing an additional tax to make the total tax on the contributions equal to the top individual marginal tax rate plus Medicare levy.

Non-concessional contributions are defined in section 292-90 of the ITAA 1997. Relevantly, subsection 292-90(2) of the ITAA 1997 provides that a contribution will be a person's non-concessional contribution in a financial year if it is made to a complying superannuation plan in respect of the person and it is not a contribution covered under section 292-95 of the ITAA 1997.

The combined effect of subsections 292-90(2) and 292-95(1) of the ITAA 1997 is to ensure that a contribution made from a person's personal injury damages is excluded from the person's non-concessional contributions. This means that a person can contribute proceeds of a personal injuries settlement or court-order to a superannuation fund without breaching the non-concessional contributions cap.

Based on the facts of this case, the Settlement Funds were received by the Taxpayer as result of a settlement of a claim that satisfies the conditions in subsection 292-95(3) of the ITAA 1997 which applies, in part, to claims:

• for compensation or damages for personal injury suffered;

• made by a person or their legal personal representative;

• based on the commission of a wrong , or on a right created by a statute; and

• the settlement of which takes the form of a written agreement between the parties to the claim (whether or not that agreement is approved by an order of a court, or is embodied in a consent order made by a court).

However, to exclude a contribution made from the proceeds of the settlement in this case, paragraph 292-95(1)(b) of the ITAA 1997 requires the contribution to be made within 90 days of the latter of:

• the day of receipt of the payment from which the contribution is made; or

• the day on which the Consent Judgment endorsing the settlement was made.

The Explanatory memorandum to the Tax laws Amendment (Simplified Superannuation) Bill 2006 described this requirement as follows:

1.96 The contribution must be made to a superannuation fund within 90 days of the payment being received or the structured settlement or order coming in effect, whichever is later. [Schedule 1, item 1, paragraph 292-95(1)(b)]

In this case, the Consent Judgment by the District Court of NSW was given and the Settlement Funds were subsequently paid into the District Court of NSW. Then several months later, as a result of a Supreme Court Order declaring the Taxpayer a protected person, the Settlement Funds were paid from the District Court of NSW to the NSW Trustee to be held on trust for the Taxpayer.

The possession of trust property by a trustee is, in equity, the possession of trust property by the beneficiary. Therefore, in this case, the 'date of the receipt of the payment from which the contribution is made' is the day the Settlement Funds were received by the NSW Trustee who, as the Taxpayer's legal representative, was entitled to receive the payment.

As the date of receipt is later than the day on which the Consent Judgment was given, the 90 day period for the purposes of paragraph 292-95(1)(b) of the ITAA 1997, in this case, commenced on the day after the Settlement Funds were transferred to the NSW Trustee.

Whether Commissioner has power to extend the 90 day period

To be excluded from non-concessional contributions as defined in section 292-90 of the ITAA 1997, paragraph 292-95(1)(b) of the ITAA 1997 requires the contribution that arises from a settlement for personal injury to be made within 90 days after the relevant date, which in this case is the day after the Settlement Funds were transferred to the NSW Trustee. There is no discretion under section 292-95 of the ITAA 1997, or elsewhere in the Act, that allows the Commissioner to extend the period beyond 90 days after the relevant date.

In the Australian Paper Manufacturers Ltd v. CIL Inc (1981) 148 CLR 551; (1981) 56 ALJR 40; (1981) 37 ALR 289;[1981] HCA 64, when discussing the power of the Commissioner of Patents to extend times for doing of certain acts and taking certain steps, Stephen J said at 556-557:

"... It is a condition precedent to the benefit which the sub-section confers that the application must be made within the time-limit which it imposes. This is a requirement of the sub-section and may accurately be described as being 'required' by it. Whenever the doing of some act is linked with a period within which it is to be done it can with perfect accuracy be described as being required to be done within that period; …

Based on the above, making the contribution within the time specified by paragraph 292-95(1)(b) of the ITAA 1997 is a condition precedent to the benefit of exclusion from the Taxpayer's non-concessional contributions cap for the relevant financial year. The Commissioner cannot extend the time beyond the time specified in paragraph 292-95(1)(b).