Edited version of your written advice

Authorisation Number: 1013128447184

Date of advice: 23 November 2016

Ruling

Subject: Constitutionally Protected Fund- Deductibility of Personal Super contribution - Contribution Caps - Division 293 Tax

Questions 1

Is the taxpayer entitled to claim a deduction under section 290-150 of the Income Tax Assessment Act 1997 in regards to the personal superannuation contributions to a self-managed super fund (SMSF) and to the Constitutionally Protected Fund (CPF) in the 20XX-YY income year and in respect of the proposed personal superannuation contributions in the 20YY-ZZ income year?

Answer 1:

Yes

Question 2

Is The Fund a CPF?

Answer 2:

Yes

Question 3

Will the contributions to CPF in the 20XX-YY and 20YY-ZZ income years be counted towards the taxpayer's concessional contribution caps?

Answer 3:

No

Question 4

Will contribution to the CPF in the 20XX-YY and the 20YY-ZZ income years be counted towards the taxpayer's non-concessional contributions caps?

Answer:

No

Question 5

Will the contributions towards the CPF for which a tax deduction is claimed count towards the taxpayer's low-tax contributed amounts for the purposes of the Division 293 Tax calculation?

Answer:

Yes

Question 6

Will the contributions to the CPF for which a tax deduction is claimed count as 'reportable superannuation contributions' for 'income for surcharge purposes' to determine eligibility for the private health insurance rebate?

Answer 6:

Yes

This ruling applies for the following period

Year ended 30 June 20YY

Year ended 30 June 20ZZ

The scheme commences on

1 July 20XX

Relevant facts and circumstances

The Taxpayer is a member of a complying superannuation fund (the Fund).

The Fund is a constitutionally protected fund (CPF) administered by the Government Employees Superannuation Board (GESB). The Fund is also an exempt public sector superannuation scheme.

The Taxpayer is also a member of the SMSF.

In the 20XX-YY income year the Taxpayer contributed the personal superannuation contribution to the fund and the SMSF

In the 20YY-ZZ income year the Taxpayer intends to make the personal superannuation contributions to the Fund and the SMSF.

Assumptions

None

Relevant legislative provisions

Income Tax Assessment Act 1997 Subsection 26-55(2)

Income Tax Assessment Act 1997 Section 290-150

Income Tax Assessment Act 1997 Subsection 290-150(2)

Income Tax Assessment Act 1997 Section 290-155

Income Tax Assessment Act 1997 Section 290-160

Income Tax Assessment Act 1997 Subsection 290-160(1)

Income Tax Assessment Act 1997 Paragraph 290-160(1)(a)

Income Tax Assessment Act 1997 Paragraph 290-160(1)(b)

Income Tax Assessment Act 1997 Subsection 290-160(2)

Income Tax Assessment Act 1997 Section 290-165

Income Tax Assessment Act 1997 Subsection 290-165(2)

Income Tax Assessment Act 1997 Section 290-170

Income Tax Assessment Act 1997 Section 290-175

Income Tax Assessment Act 1997 Subparagraph 292-25(2)(c)(iii)

Income Tax Assessment Act 1997 Section 293-25

Income Tax Assessment Act 1997 Section 293-30

Further issues for you to consider

Anti-avoidance rules

Not applicable.

Reasons for decision

Summary

Based on the information provided, the Taxpayer will be able to claim deductions under Section 290-150 of the Income Tax Assessment Act 1997 (ITAA 1997) for their personal superannuation contributions made to the SMSF and the Fund in the 20XX-YY and 20YY-ZZ income years, provided that all the conditions are satisfied.

The Fund is a constitutionally protected fund (CPF).

Contributions made to CPFs are not concessional contributions as established in Subparagraph 291-25(2)(c)(iii) of ITAA 1997.

Contributions made to a CPF are not non-concessional contributions unless the contribution is included in the contributions segment. As such, the personal superannuation contributions made to the Fund will not count towards the Taxpayer's concessional contributions cap nor their non-concessional contributions cap for the 20XX-YY and the 20YY-ZZ income years.

The contributions towards the CPF in both the 20XX-YY and 20YY-ZZ income years will be counted towards your client's low-tax contributed amounts for the purposes of Division 293 tax calculations.

Detailed reasoning

Definition of the Constitutionally Protected Fund

The Fund is a constitutionally protected fund (CPF) as it adheres to the definition of a CPF outlined in section 995-1.04 of the Income Tax Assessment Regulations 1997 (ITAR 1997). Section 995-1.04 prescribes that superannuation funds are considered to be CPFs if they are established by a State Act mentioned in Schedule 4 of ITAR 1997. Provided that the Government Employees Superannuation Board (GESB) operates under the State Superannuation Act 2000 which is listed under Schedule 4 of ITAR 1997 and The Fund is administered by the GESB, The Fund is a CPF.

Deductibility of Personal Superannuation Contributions

Section 290-150(1) of the ITAA 1997 states that a person can claim a deduction for personal contributions made to a superannuation and for the purpose of providing superannuation benefits for themselves.

However, the conditions in sections 290-155, 190-160 (if applicable), 290-165 and 190-170 of the ITAA 1997 must also be satisfied for the person to claim the deductions

Complying superannuation fund condition

The condition in section 290-155 of the ITAA 1997 requires that where the contribution is made to a superannuation fund, it must be made to a complying superannuation fund for the income year in which you made the contributions.

In this instance, the Taxpayer intends to make personal contributions to the Fund and the SMSF. As both the Fund and the SMSF are complying superannuation funds, the condition in section 290-155 of the ITAA 1997 will be satisfied for both the 20XX-YY and the 20YY-ZZ income years.

Maximum earnings as an employee condition

Subsection 290-160(1) of the ITAA 1997 states:

a. This section applies if:

(a) in the income year in which you make the contribution, you engage in any of these activities:

holding an office or appointment;

(b) (ii) performing functions or duties;

(c) (iii) engaging in work;

(d) (iv) doing acts or things; and

b. (b) the activities result in you being treated as an employee for the purposes of the Superannuation Guarantee (Administration) Act 1992 (assuming that subsection 12(11) of that Act had not been enacted).

For those persons who fall under the requirements outlined above, subsection 290-160(2) of the ITAA 1997 prescribes that a deduction for personal contributions can only be claimed where the sum of their:

● assessable income;

● reportable fringe benefits total; and

● reportable employer superannuation contributions

attributable to the employment activities is less than 10% of the total of that person's assessable income, reportable fringe benefits and reportable employer superannuation contributions. This calculation is referred to as the maximum earnings test.

The facts provided in this case indicate that the amounts attributable to employment related activities which the Taxpayer will receive in the 20XX-YY and 20YY-ZZ income years will be less than 10% of their total assessable income, reportable fringe benefits and reportable employer superannuation contributions in each of those years.

Accordingly, the Taxpayer will satisfy the maximum earnings test under section 290-160 of the ITAA 1997 for the 20XX-YY and 20YY-ZZ income years.

Age-related conditions

Under subsection 290-165(2) of the ITAA 1997, the ability to claim a deduction ceases for contributions that are made after 28 days from the end of the month in which the person making the contribution turns 75 years of age.

The Taxpayer will satisfy the age-related conditions for the contributions in both 20XX-YY and 20YY-ZZ income years.

Notice of intent to deduct conditions

According to section 290-170 of the ITAA 1997, in order to deduct a contribution, your client is required to provide to the trustees of the Fund and the SMSF a valid notice, in the approved form, of their intention to claim a deduction. The notice must be given by the earlier of:

● the date your client lodges their income tax return for the income year in which the contribution is made; or

● the end of the following income year.

The Taxpayer must also be given an acknowledgment of receipt of the notice by the trustees of the Fund and the SMSF.

A notice of intent to deduct the Taxpayer's contributions will not be valid if one or more of the following conditions in subsection 290-170(2) of the ITAA 1997 are satisfied:

(a) the notice is not in respect of the contribution;

(b) the notice includes all or part of an amount covered by a previous notice;

(c) when you gave the notice:

(i) you were not a member of the fund or the holder of the RSA;

or

(ii) the trustee or RSA provider no longer holds the contribution;

or

(iii) the trustee or RSA provider has begun to pay a superannuation income stream based in whole or part on the contribution;

(d) before you gave the notice:

(i) you had made a contributions splitting application... in relation to the contribution; and

(ii) the trustee or RSA provider had not rejected the application.

In relation to the proposed contributions in the 20XX-YY and 20YY-ZZ income years, provided the Taxpayer:

● gives valid notices of intent to the trustees of the Fund and the SMSF within the time frames previously discussed; and

● the trustees of the Fund and the SMSF duly acknowledge those notices; it is accepted that section 290-170 of the ITAA will be satisfied

Deduction limits

The allowable deduction is limited under subsection 26-55(2) of the ITAA 1997 to the amount of assessable income remaining after subtracting all other deductions (excluding previous year's tax losses and any deductions for farm management losses) from a taxpayer's assessable income.

Thus a deduction for personal superannuation contributions cannot add to, or create, a loss.

Contribution limits

It is noted that the Fund is a CPF. Subparagraph 291-25(2)(c)(iii) of the ITAA 1997 specifically excludes contributions made to a CPF from the definition of concessional contributions. This means that the Taxpayer's proposed contributions to the Fund will not be concessional contributions.

In view of this, neither the proposed contributions in the 20XX-YY income year nor the proposed contributions in the 20YY-ZZ income year will count towards the Taxpayer's concessional contributions caps for the 20XX-YY and 20YY-ZZ income years.

It is noted that the SMSF is not a constitutionally protected fund (CPF) and so the normal rules regarding contribution limits will apply.

The concessional contributions cap for the 20XX-YY income year and later income years is $35,000 if you were aged 49 years or over on the last day of the previous income year.

In this case, concessional contributions include all employer superannuation contributions and any personal contributions to the SMSF that are claimed as a tax deduction.

Therefore, as the Taxpayer was over 49 years of age on 30 June 2014, the Taxpayer will be able to claim a deduction up to the concessional contributions cap of $35,000 in the 20XX-YY income year. Similarly, the Taxpayer will be able to claim a deduction up to the concessional contributions cap of $35,000 in the 20YY-ZZ income year.

Division 293 and low tax contributed amounts

Division 293 tax is paid by certain individuals whose income for surcharge purposes (other than reportable super contributions), plus their concessionally taxed super contributions (also known as low tax contributions for Division 293 purposes) are greater than $300,000.

Low tax contributions that attract Division 293 tax are defined in section 293-30 of the ITAA 1997 and include (but are not limited to):

● employer contributions (including compulsory super guarantee contributions and salary sacrificed amounts) paid to an accumulation interest

● personal super contributions that are tax deductible (most commonly claimed by self-employed people), and

● defined benefit contributions (for defined benefit interests)

● The amount of low tax contributions for a financial year is worked out under:

● the general rules that apply to taxpayers with contributions made or amounts allocated to accumulation interests, and

● the special rules that apply to individuals with defined benefit interests

Where there is an accumulation interests in a CPF, low tax contributed amounts also includes contributions made to a CPF because the exemption for these types of contributions from being concessional contributions is disregarded for Division 293 tax purposes by the application of subsection 293-30(3) of the ITAA 1997.

As the Taxpayer's proposed contributions to the Fund would have been concessional contributions if the Fund had not been a CPF, the proposed contributions will count towards the taxpayer's low tax contribution amount (LTCA) in the 20XX-YY income years.

Income for surcharge purposes

The private health insurance tax offset is income tested. This means that if the taxpayer's income is higher than the relevant income threshold, the taxpayer may not be eligible to receive a rebate.

Income for surcharge purposes includes the following amounts:

● an individual's taxable income (including the net amount on which family trust distribution tax has been paid)

● an individual's reportable fringe benefits (as reported on your payment summary)

● an individual's total net investment losses (including both net financial investment losses and net rental property losses)

● an individual's reportable super contributions (including reportable employer super contributions and deductible personal super contributions).

A reportable superannuation contribution for an individual and an income year, as defined by section 995-1 of the ITAA 1997, means the sum of:

a) the individual's reportable employer superannuation contributions (if any) for the income year, and

b) the individual's deductions (if any) for personal superannuation contributions under Subdivision 290-C of the ITAA 1997 for the income year.

This amount is reduced (but not below zero) by the amount of any excess concessional contributions the individual has for the financial year corresponding to the income year.

Subdivision 290-C of the ITAA 1997 includes deductions for personal contributions under section 290-150 of the ITAA 1997.

It has been determined that the Taxpayer is entitled to claim a deduction under section 290-150 of the ITAA 1997 in respect of proposed personal superannuation contributions in both the 20XX-YY and 20YY-ZZ income years. Therefore, these contributions are considered reportable superannuation contributions when determining the taxpayer's income for surcharge purposes.