ATO Interpretative Decision

ATO ID 2007/131 (Withdrawn)

Superannuation

• This ATO ID is withdrawn because it contains a view in respect of a provision of the Income Tax (Transitional Provisions) Act 1997 that only applies to the 2006-07 income year. Despite its withdrawal, this ATO ID continues to be a precedential ATO view in respect of decisions for the 2006-07 income year.
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Issue

Is any component of an employer eligible termination payment (ETP) that is rolled over into a superannuation fund between 10 May 2006 and 30 June 2007 a non-concessional contribution within the meaning of section 292-90 the Income Tax Assessment Act 1997 (ITAA 1997)?

Decision

Yes, but only to the extent that it is not a taxable contribution to the fund under section 274 of the Income Tax Assessment Act 1936 (ITAA 1936). However, if the employer ETP consists of a capital gains tax (CGT) exempt component and the individual has made a choice under paragraph 292-100(1)(c) of the ITAA 1997, the amount covered by the choice does not count towards the individual's non-concessional contributions cap for the 10 May 2006 to 30 June 2007 period. Instead it counts towards the individual's lifetime CGT cap amount (as outlined under section 292-105 of the ITAA 1997).

Facts

An individual ceased employment on 20 February 2007.

The employee was entitled to an employer ETP of $562,000 and requested that their former employer pay it to the employee's superannuation fund.

The former employer paid the ETP to the employee's superannuation fund on 30 April 2007. The ETP consisted of the following components:

•

pre-July 83 component of $62,000, and

•

post-June 83 component of $500,000.

Being an employer ETP, the post-June 83 component of the ETP consists entirely of an untaxed element.

Reasons for Decision

Under paragraph 292-90(2)(b) of the ITAA 1997, a contribution is included in an individual's non-concessional contributions for a financial year if it is not included in the assessable income of the superannuation provider in relation to the superannuation plan.

Section 292-80 of the Income Tax (Transitional Provisions) Act 1997 (ITTPA 1997) outlines the application of excess non-concessional contributions tax from 10 May 2006 to 30 June 2007.

Subsection 292-80(2) of ITTPA 1997 applies all provisions necessary for the operation of excess non-concessional contributions tax from 10 May 2006. This provision ensures that the rules outlined in Subdivision 292-C of the ITAA 1997 which take effect from 1 July 2007 apply to the period 10 May 2006 to 30 June 2007, with the modifications outlined in section 292-80 of the ITTPA 1997. It also ensures that any other provision of the ITAA 1997 and any other Act also apply in that period to the extent that they relate to the operation of Subdivision 292-C of the ITAA 1997.

For the 2007-08 and later income years, Division 295 of the ITAA 1997 provides when a contribution is included in the assessable income of a superannuation provider in relation to a superannuation plan. Prior to the 2007-08 income year, section 274 of the ITAA 1936 provides when a contribution is a taxable contribution for a fund. Specifically, subparagraph 274(1)(a)(ii) of the ITAA 1936 provides that a specified rollover amount is a taxable contribution for a resident superannuation fund (see subparagraph 274(1)(ba)(ii) and paragraph 274(1)(c) of the ITAA 1936 for the relevant provisions that include specified roll-over amounts as taxable contributions for retirement savings accounts and eligible approved deposit funds). Subsection 267(1) of the ITAA 1936 defines 'specified roll-over amount' to mean so much of an amount paid to the fund as constitutes a roll-over of some or all of the untaxed element of the post-June 83 component (within the meaning of Subdivision AA of Division 2 of Part III) of an ETP.

In working out what non-concessional contributions count to the non-concessional contribution cap for the 10 May 2006 to 30 June 2007 period, paragraph 292-80(2)(a) of the ITTPA 1997 states the rules in Subdivision 292-C of the ITAA 1997 apply. Under section 292-80 of the ITAA 1997, an individual will be liable to pay excess non-concessional contribution tax if they have excess non-concessional contributions for a financial year. For the transitional period, the financial year is considered to be the 10 May 2006 to 30 June 2007 period (paragraph 292-80(3)(a) of the ITTPA 1997).

For the transitional period, an individual's excess non-concessional contributions for a financial year are worked out by reference to sections 292-85 and 292-90 of the ITAA 1997 as modified by section 292-80 of the ITTPA 1997.

Paragraph 292-80(2)(c) of the ITTPA 1997 applies any other provision of any other Act to the extent that it relates to Subdivision 292-C of the ITAA 1997. A superannuation fund's taxable income in the transitional period is calculated under Part IX of the ITAA 1936. To determine whether a contribution is included in the assessable income of a fund in the transitional period it is necessary to apply Part IX of the ITAA 1936. Specifically, a contribution will not be a taxable contribution if it is not covered by section 274 of the ITAA 1936.

The untaxed element of the post-June 83 component of an ETP is a taxable contribution under section 274 of the ITAA 1936. As this component is a taxable contribution it is included in the assessable income of the fund and is therefore not a non-concessional contribution under paragraph 292-90(2)(b) of the ITAA 1997.

The pre-July 1983 component is not a taxable contribution under section 274 of the ITAA 1936 and is therefore not included in the assessable income of the fund. Consequently the pre-July 1983 component is a non-concessional contribution for the 10 May 2006 to 30 June 2007 period under paragraph 292-90(2)(b) of the ITAA 1997.

Only that part of the individual's employer ETP of $562,000 that is not included in the assessable income of the fund is a non-concessional contribution for the period 10 May 2006 to 30 June 2007. That is, only the pre-July 1983 component of the ETP ($62,000) is a non-concessional contribution for the 10 May 2006 to 30 June 2007 period.

A person's non-concessional contributions cap for the period 10 May 2006 to 30 June 2007 is $1 million (paragraph 292-80(3)(c) of the ITTPA 1997). If the individual makes other non-concessional contributions in this period of over $938,000 the individual will have excess non-concessional contributions for the 10 May 2006 to 30 June 2007 period and will therefore be liable for excess non-concessional contributions tax for the 2006-07 financial year.

Year of income:  Year ended 30 June 2007

Legislative References:
Income Tax Assessment Act 1936
   Part IX
   subsection 267(1)
   section 274
   subparagraph 274(1)(a)(ii)
   subparagraph 274(1)(b)(ii)
   paragraph 274(1)(c)

Other References:
Explanatory Memorandum to the Tax Laws Amendment (Simplified Superannuation) Act 2007

Keywords
Eligible termination payments

Siebel/TDMS Reference Number:  5727970; 1-FXH5JY2

Business Line:  Superannuation

Date of publication:  29 June 2007
Date reviewed:  9 January 2014

ISSN: 1445-2782