ATO Interpretative Decision

ATO ID 2007/147 (Withdrawn)

Superannuation

Deduction limit for employer superannuation contributions under subsection 82AAC(2) of the ITAA 1936 - associates for part of the year of income
FOI status: may be released
  • This ATO ID is withdrawn because it contains a view in respect of section 82AAC of the Income Tax Assessment Act 1936. That section does not apply for the 2007-08 income year and later income years as it was repealed by Superannuation Legislation Amendment (Simplification) Act 2007. This ATO ID continues to be a precedential view in respect of decisions for income years up to, and including the 2006-07 income year.
    This document has changed over time. View its history.

CAUTION: This is an edited and summarised record of a Tax Office decision. This record is not published as a form of advice. It is being made available for your inspection to meet FOI requirements, because it may be used by an officer in making another decision.

This ATOID provides you with the following level of protection:

If you reasonably apply this decision in good faith to your own circumstances (which are not materially different from those described in the decision), and the decision is later found to be incorrect you will not be liable to pay any penalty or interest. However, you will be required to pay any underpaid tax (or repay any over-claimed credit, grant or benefit), provided the time limits under the law allow it. If you do intend to apply this decision to your own circumstances, you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed. You may wish to obtain further advice from the Tax Office or from a professional adviser.

Issue

Are superannuation contributions made by a taxpayer company (company A) on behalf of a person in the 2006-07 year of income required to be combined with the total of the contributions made by another company (company B) on behalf of that person in the 2006-07 year of income for the purpose of subsection 82AAC(2) of the Income Tax Assessment Act 1936 (ITAA 1936) even though the two companies were associates for only part of the 2006-07 year of income?

Decision

Yes. Superannuation contributions made by company A on behalf of a person in the 2006-07 year of income are required to be combined with the total of the contributions made by company B on behalf of that person in the 2006-07 year of income for the purpose of subsection 82AAC(2) of the ITAA 1936 even though the two companies were associates for only part of the 2006-07 year of income.

Facts

Company A had a majority shareholding in company B until the end of August 2006. The two companies were therefore associates of each other within the meaning of section 318 of the ITAA 1936.

Up until the end of August 2006, the relevant person was a director and shareholder of company A and a director and employee of company B.

Company B made superannuation contributions to a complying superannuation fund for the person in that person's capacity as an employee of company B in the period between 1 July 2006 and the end of August 2006. No contributions were made by company A for the person during this period.

The amount of the contributions made by company B for the person was less than the person's age-based deduction limit for the 2006-07 year of income.

At the end of August 2006, all shares in company B were acquired by an unrelated party.

From the end of August 2006, the person ceased to be a director of company B but continued as an employee of the company.

Company B continued to make contributions for the person in his capacity of employee after the end of August 2006.

The person continued to be a director and shareholder of company A.

Company A made contributions for the person to a complying superannuation fund for the 2006-07 year of income prior to the end of the income year.

Reasons for Decision

For a contribution made by a taxpayer on behalf of a person to be an allowable deduction to the taxpayer, the taxpayer must satisfy the requirements of section 82AAC of the ITAA 1936. Under subsection 82AAC(1) of the ITAA 1936, the amount of a contribution made by a taxpayer will be allowable as a deduction to the taxpayer for the year of income in which the contribution was made provided the three conditions in subsection 82AAC(1) of the ITAA 1936 are satisfied.

Under subsection 82AAC(2) of the ITAA 1936, the total of the deductions allowable under subsection 82AAC(1) of the ITAA 1936 for contributions made by a taxpayer, or by a taxpayer and one or more associates of the taxpayer, in a year of income in respect of a particular person must not exceed the person's deduction limit for the year of income (as worked out under subsection 82AAC(2A) of the ITAA 1936).

Under subsection 82AAC(3) of the ITAA 1936, the term 'associate', in relation to a person, has the same meaning as in section 318 of the ITAA 1936.

Section 6 of the ITAA 1936 defines a 'person' for the purposes of that Act to include a company. Therefore, the definition of 'associate' in section 318 of the ITAA 1936 is relevant.

Subsection 82AAC(2) was inserted into the ITAA 1936 by Taxation Laws Amendment (Superannuation) Act 1992. As to the purpose or object underlying the provision, the Explanatory Memorandum to the Taxation Laws Amendment (Superannuation) Bill 1992 relevantly stated that:

These deduction limits apply to a particular employer irrespective of superannuation contributions made by another employer for the benefit of the same employee, except where the two employers are associates. Therefore, if an employee works for two employers, either at the same time or at different times during the year of income, both employers are entitled to deductions for superannuation contributions up to the age based limit for the employee.

Having regard to the ordinary meaning conveyed by the text of subsection 82AAC(2) of the ITAA 1936 and the purpose or object underlying the provision, the total contributions made by company A on behalf of the person in the 2006-07 year of income are required to be combined with the total of the contributions made by company B on behalf of that person in the 2006-07 year of income for the purposes of subsection 82AAC(2), even though the two companies were not associates for the entire year of income.

When the provision is read as a whole, the phrase 'in a year of income' has a nexus to the term 'associates' as well as to other terms in the provision. Further, because of the proximity of the phrase 'in a year of income' to the term 'associates', it is difficult to argue that the words 'in a year of income' do not refer to the words closest to it. This requires, in the absence of other compelling evidence, a conclusion that the legislative intent is best achieved by adopting the position that a taxpayer and its associates during the year of income are required to combine their total contributions for the purpose of subsection 82AAC(2) of the ITAA 1936 for the year of income.

There is nothing in the text of subsection 82AAC(2) of the ITAA 1936 which states, or anything in the extrinsic material which indicates, that the companies are required to be associates at the time the contributions are made. Subsection 82AAC(2) simply requires contributions made by a taxpayer and one or more associates of the taxpayer, in a year of income in respect of a particular person to be combined for the purpose of determining the total of the deductions allowable to the taxpayer in respect of the person. The taxpayer and the associate are effectively viewed as the one entity for the entire year of income for the purpose of subsection 82AAC(2), whether or not they are associates for the entire year of income.

Accordingly, the fact that the two companies have been associated for at least one day in the income year results in all contributions made during the year by both companies being combined for the purpose of subsection 82AAC(2) of the ITAA 1936. The one deduction limit applies for all contributions made by both companies in the year of income.

Note: the above analysis will only apply until 30 June 2007 as section 82AAC has been repealed by Superannuation Legislation Amendment (Simplification) Act 2007, applicable to the 2007-08 year of income and later years.

Date of decision:  9 July 2007

Year of income:  Year ended 30 June 2007

Legislative References:
Income Tax Assessment Act 1936
   section 6
   section 82AAC
   subsection 82AAC(1)
   subsection 82AAC(2)
   subsection 82AAC(2A)
   subsection 82AAC(3)
   section 318


   Taxation Laws Amendment (Superannuation) Act 1992


   Superannuation Legislation Amendment (Simplification) Act 2007

Other References:
Explanatory Memorandum to the Taxation Laws Amendment (Superannuation) Bill 1992

Keywords
Contributions for employees - allowable deductions
Contributions for employees - age based limits
Employer superannuation contributions
Superannuation contributions - deductions & rebates
Superannuation contributions for employees

Business Line:  Superannuation

Date of publication:  13 July 2007

ISSN: 1445-2782

history
  Date: Version:
  9 July 2007 Original statement
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