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Edited version of your written advice
Authorisation Number: 1013037825352
Date of advice: 28 June 2016
Ruling
Subject: Concessional contributions
Question
Will the concessional contributions cap of $35,000 apply to your client if they make a superannuation contribution to a constitutionally protected fund in the 20XX-YY income year?
Answer
No.
This advice applies for the following period:
Year ended 30 June 20YY
The arrangement commences on:
1 July 20XX
Relevant facts and circumstances
Your client is a member of a fund (the Fund). The Fund is a constitutionally protected fund (CPF) administered by a superannuation board. The Fund is also an exempt public sector superannuation scheme and a complying superannuation fund.
Your client intends make a contribution during the 20XX-YY income year to the Fund.
Your client is an employee of an employer (the Employer).
The contribution made to the Fund will be under a salary sacrifice arrangement from your client's employment with the Employer.
Your client is over 55 years of age.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 291-25
Income Tax Assessment Act 1997 Subsection 307-350(1)
Reasons for decision
Summary
The Fund is a constitutionally protected fund (CPF). The contributions made to the Fund under a salary sacrifice arrangement are not included in your client's concessional contributions. As a result, these contributions are not counted towards your client's concessional contributions cap. Therefore the concessional contributions cap of $35,000 does not apply to your client if they make a superannuation contribution to the Fund in the 20XX-YY income year. If your client makes concessional contributions to another fund other than the CPF, they will be counted towards your client's concessional contributions cap.
However, when your client receives or rolls-over the benefit from the CPF, the element untaxed in the Fund will be assessed against the untaxed plan cap amount at that time. Any amount in excess of the untaxed plan cap amount will be subject to tax at your client's highest marginal rate.
Detailed Reasoning
Concessional contributions
Concessional contributions made to superannuation funds are subject to an annual cap. For the 20XX-YY income year, the annual concessional contributions cap is $35,000 for a taxpayer 49 years or over on 30 June 20XX.
Concessional contributions in excess of the concessional contributions cap are called excess concessional contributions. A person is taxed on the excess concessional contributions at their marginal tax rate. In addition, the amount of any excess concessional contributions for a financial year is counted towards the person's non-concessional contributions cap for that year.
The amount of a person's concessional contributions for a financial year is determined under section 291-25 of the ITAA 1997. Subsection 291-25(2) 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 salary sacrifice arrangement (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 291-25(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 291-25(2)(c)(iii) excludes any contributions made to a 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 a SSA.
As the Fund is a CPF, contributions made to the Fund are not treated as concessional contributions under subsection 291-25(3) of the ITAA 1997. Therefore, they are also not counted towards your client's concessional contributions cap under this provision.
Accordingly, the contributions made to the Fund under a SSA are not concessional contributions and are not counted towards your client's concessional contributions cap for the 20XX-YY income year.
Therefore the concessional contributions cap of $35,000 does not apply to your client if they make a superannuation contribution to the Fund in the 20XX-YY income year.
Untaxed plan cap amount
The untaxed plan cap amount limits the concessional tax treatment of benefits that have not been subject to tax in a superannuation fund. Amounts received in excess of the untaxed plan cap amount are subject to tax at the highest marginal rate.
The taxable component of payments made from a CPF is an element untaxed in the fund because, as a CPF, it is specifically exempted from tax on all contributions and earnings it receives.
In accordance with subsection 307-350(1) of the ITAA 1997, the untaxed plan cap amount applies to each superannuation plan from which a person receives or rolls-over a superannuation lump sum member benefit, that includes an element untaxed in the fund.
For the 20XX-YY income year the untaxed plan cap amount is $X. The untaxed plan cap amount is indexed annually.
Concessional contributions to a fund other than a CPF are counted towards the concessional contributions cap
Under subsection 291-25(2) of the ITAA 1997 concessional contributions include employer contributions and 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 another fund other than the CPF, they will be counted towards your client's concessional contributions cap.