Edited version of your written advice

Authorisation Number: 1051202035491

Date of advice: 15 March 2017

Ruling

Subject: Assessability of superannuation made in favour of local Government Administrators

Question 1

Can the organisation make payments to a complying superannuation fund, where those funds are assessable to the superannuation fund under section 295-160 of the Income Tax Assessment Act 1997 (ITAA 1997), as part of the taxpayer's fee?

Answer

Yes

This ruling applies for the following periods:

2017-18 income year

The scheme commences on:

May 2016

Relevant facts and circumstances

The taxpayer holds, for a specific term, all of the statutory functions of the organisation.

The taxpayer's remuneration is paid out of the organisation's funds.

The taxpayer wishes to forego part of their remuneration in exchange for the organisation making contributions to a complying superannuation fund on their behalf.

Relevant legislative provisions

Section 6-5 of the Income Tax Assessment Act 1997
Subsection 6-5(4) of the ITAA 1997

Section 15-2 of the ITAA 1997

Section 290-10 of the ITAA 1997

Section 290-60 of the ITAA 1997

Section 295-160 of the ITAA 1997

Section 12 of the Superannuation Guarantee (Administration) Act 1992
Paragraph 26(e) of the ITAA 1936

Reasons for decision

Income from the remuneration arrangement between the organisation and the taxpayer would normally be assessable under section 6-5 of the ITAA 1997 when it is received by the taxpayer. It may be taken to have been received under subsection 6-5(4) of the ITAA 1997 where it is otherwise dealt with on behalf of the taxpayer. However, contributions made to a complying superannuation fund on behalf of the taxpayer as part of an agreement between the organisation and the taxpayer will not fall within the ambit of subsection 6-5(4) of the ITAA 1997 because it is accepted that the taxpayer has agreed to forego part of the remuneration before earning the entitlement to receive that amount as ordinary income.

Once it is established that subsection 6-5(4) of the ITAA 1997 does not apply to the arrangement it becomes necessary to consider the application of section 15-2 of the ITAA 1997.

In Constable v. Federal Commissioner of Taxation (1952) 86 CLR 402; (1952) 10 ATD 93; (1952) 5 AITR 371 ( Constable ) the obiter comments of the majority of the High Court of Australia were to the effect that the sums contributed by the employer to the fund were not allowed, given or granted to an employee and were therefore not assessable under paragraph 26(e) of the Income Tax Assessment Act 1936 (ITAA 1936), but instead were paid to the administrators of the fund. While the members did not have a vested and indefeasible right to the employer contributions in that case, the court's comments support the view that section 15-2 of the ITAA 1997 (the rewritten version of paragraph 26(e) of the ITAA 1936) does not apply to the making of contributions to a superannuation fund by an employer for the employees' benefit.

Since the decision in Constable, the scheme of superannuation and taxation law has been prefaced on the view that a contribution by an employer to a superannuation fund is not the income of the employee. Much of the superannuation guarantee law and income tax law concerning the taxation of superannuation funds would be redundant if employer contributions were assessable income of employees when the contributions were made.

It is acknowledged that the taxpayer is not an employee of the organisation. However, similarly to the position with employees the contributions made by the organisation represent assessable income of the superannuation fund as a contribution to provide benefits for someone else as set out under section 295-160 of the ITAA 1997. In light of this and the foregoing consideration of the decision in Constable, coupled with the subsequent development of the scheme of taxation of complying superannuation funds, it is considered that the same reasoning as applied to employees in respect to the application of section 15-2 of the ITAA 1997 would apply with equal force to the taxpayer in the circumstances set out above.

Note: sections 290-10 and 290-60 of the ITAA 1997 work together to ensure that no deduction is available for a contribution to a superannuation fund for the benefit of another person who is not an employee under section 12 of the Superannuation Guarantee (Administration) Act 1992.