Superannuation interest
A 'superannuation interest' is defined as an interest in a superannuation fund.
The Commissioner considers this definition generally refers to:
- the rights of persons who have proprietary or no proprietary interests in the fund
- purely contractual rights (an annuity) and,
- statutory rights to super benefits.
'Interest in' a fund refers to a distinct claim of any kind against a fund. Various regulations made under the income tax law modify this general principle by creating special rules for what constitutes a superannuation interest.
The following information sets out the Commissioner's view as to what constitutes a superannuation interest for each type of super fund. It only deals with super funds and not approved deposit funds, retirement savings accounts or superannuation annuities.
Interest in self-managed superannuation funds (SMSFs)
An amount that supports a super income stream started from an SMSF is treated as a separate interest when the income stream starts ( the value of the tax free and taxable components supporting the interest will be determined at the time when the superannuation income stream commenced).
In the case of multiple income streams commenced from the same SMSF, each income stream commenced gives rise to a separate interest from the interest to which each other income stream gives rise.
Except for that case, a member of an SMSF always has just one interest in the SMSF.
Funds with no more than 6 members that are not SMSFs (that is, 'small APRA funds') are not in the same category as SMSFs, they are covered by other Super funds.
Other Super funds
An amount that supports a superannuation income stream started from a fund of this kind is treated as a separate interest when the income stream starts (, the value of the tax free and taxable components supporting the interest will be determined at the time when the superannuation income stream commenced).
In most cases, it will be a question of fact whether the various amounts, benefits and entitlements that a member has in a fund constitute one interest or several interests in the fund.
However, where multiple income streams start from the same fund, each income stream is treated as a separate interest.
If a member has separate accounts in a fund, the Commissioner accepts that an account constitutes a separate interest so long as, the account reflects a claim that is separate and distinct from other claims of that kind that the member has against the fund. For example, if the member has bought multiple products through separate process for each product where each product gives the member separate legal rights against the trustee.
By contrast, merely purporting to divide a member's entitlements into separate accounts as a bookkeeping exercise, such as separate bookkeeping for investments against which a person had a single claim, does not establish that there are separate interests
Public sector superannuation schemes (PSSS)
This includes constitutionally protected funds.
The same principles apply. For many PSSS the source of the various rights and obligations of scheme members is the legislation establishing the scheme rather than a trust deed or a contract. As such, the relevant legislation will be the starting point for determining separate interests.
There is one extra rule, if a benefit is partly sourced from contributions to the scheme and earnings on those contributions and partly from some other source, the member's interest is separated into 2 interests:
- one interest that consists of the contributions to the scheme and the earnings on those contributions
- one interest consisting of the remainder of the interest.
For this purpose the 'contributions and earnings' are reduced by the amount specified in any notice given under s307-285 for the benefit.
Part IVA Anti-avoidance provisions
Nothing in this information stops the general anti-avoidance provisions in Part IVA of the Income Tax Assessment Act 1936 from applying.
Setting up or changing superannuation interests in an obvious, artificial, or contrived way just to get a tax advantage could trigger the anti‑avoidance provisions in Part IVA. This would have consequences for the taxpayer who obtains the tax benefit, being the relevant member in this case. Practice Statement PS LA 2005/24 explains how the Commissioner interprets and administers Part IVA.
More information
For more information see Section 995-1 of the Income Tax Assessment Act 1997 (ITAA 1997) for the definition of 'superannuation interest.'