House of Representatives

Explanatory Memorandum

(Circulated by the authority of the Treasurer, the Hon John Dawkins, M.P.)

Chapter 2 Notice requirements for personal superannuation contributions

Summary of proposed amendments

Purpose of amendment: To amend the Income Tax Assessment Act 1936 so that a taxpayer will be eligible for a deduction for personal superannuation contributions to a complying superannuation fund only if:

•

the taxpayer gives a notice to the fund stating the amount of their personal superannuation contributions that they are intending to claim as a tax deduction; and

•

they receive an acknowledgment of the notice from the fund indicating that the fund will include the amount covered by the notice as taxable contributions.

Personal superannuation contributions will not be treated as taxable contributions by a complying superannuation fund unless the fund has received a notice from the member stating that he or she is intending to claim a deduction for his or her contributions.

Date of effect: Contributions made to a fund on or after 1 July 1992, other than contributions made by a person who has ceased to be a member of the fund before the date of Royal Assent.

Background to the legislation

Section 274 of the Income Tax Assessment Act 1936 specifies those amounts received by a superannuation fund or approved deposit fund (ADF) that are included in taxable contributions. Paragraph 274(1)(a) essentially deals with employer contributions to superannuation funds. Paragraph 274(1)(b) deals with personal superannuation contributions. Paragraph 274(1)(c) concerns amounts rolled-over to ADFs.

The general scheme of paragraph 274(1)(b), which relates to personal superannuation contributions, is that only contributions which qualify for a deduction are taxable contributions. However, the trustee of a superannuation fund must assume that all personal superannuation contributions are taxable contributions unless they receive notification to the contrary, even though the vast majority of personal superannuation contributions do not qualify for a deduction.

Subsection 274(2) excludes from taxable contributions any amount covered by a subsection 82AAT(1A) notice given to the trustee of the fund before the date on which the trustee lodges the fund's income tax return for the year of income. If the notice is given to the fund after that date, the contribution is still a deductible contribution but the fund is entitled to claim relief under section 276.

A subsection 82AAT(1A) notice is given by the contributor to advise the fund that the contributor is not going to claim an income tax deduction for the contributions, or for part of the contributions, which they have made to the fund. The notice must be given in a form and manner approved by the Commissioner and is irrevocable.

Generally speaking, a person who receives superannuation support from an employer or some other person is not entitled to a deduction for their personal superannuation contributions. Subsection 274(4) provides a mechanism to prevent such contributions from being treated as taxable contributions. That section allows for a notice to be given by an approved person (who is usually the employer) stating that the approved person is satisfied that the member concerned is not entitled to a deduction for their personal superannuation contributions.

Subsection 274(3) provides that, if the trustee of a fund receives a subsection 274(4) notice before lodging the fund's income tax return for the year of income, contributions by the member covered by the notice for the year concerned are not taxable contributions. If the notice is given to the fund after that time, then the contributions for the member concerned will be taxable contributions but the fund will be entitled to relief under section 276.

Section 276 applies when a subsection 82AAT(1A) notice or a subsection 274(4) notice is given to the trustee of a fund after the fund has lodged its income tax return for the year concerned. In this situation contributions will have incorrectly been included as taxable contributions of the fund for the year. Section 276 provides relief for the fund in one of two ways. One way is to treat the amount of the contributions concerned as a deduction for the year in which the trustee actually receives the notice. The other is to treat the contributions concerned as not having been taxable contributions of the fund in the year the contributions were made.

Explanation of proposed amendments

Deductibility of personal superannuation contributions

A person who makes personal contributions to a superannuation fund will be entitled to a deduction for those contributions only if all of the following conditions are met:

•

the person is an eligible person (as defined in subsection 82AAS(1));

•

the contributions are made to obtain superannuation benefits for the person, or for dependants of the person in the event of their death

•

the fund is a complying superannuation fund; and

•

the member has given a subsection 82AAT(1A) notice to the fund in relation to the contributions and has received acknowledgment of the notice from the superannuation fund.

The deduction cannot exceed the amount covered by the notice and is subject to the limits in subsection 82AAT(2) [New subsection 82AAT(1)].

The notice must state the member's intention to claim a deduction for the whole or a part of the contributions covered by the notice [New subsection 82AAT(1A)].

The following restrictions apply to subsection 82AAT(1A) notices:

(a)

a subsection 82AAT(1A) notice cannot cover the whole or part of any contributions covered by an earlier notice.

This will ensure that, if a member gives more than one notice to a fund in respect of contributions for an income year, the trustee of a fund will not double count contributions covered by more than one notice when working out the fund's taxable contributions [New paragraph 82AAT(1B)(a)];

(b)

a subsection 82AAT(1A) notice cannot be given to the trustee of a fund once a person has ceased to be a member of the fund.

This condition is imposed because the trustee of the fund will have calculated the components of the eligible termination payment (ETP) made to the member on the understanding that contributions not covered by notices at the time of payment are undeducted contributions.

Once the member has left the fund it is too late for the fund to include the relevant contributions as taxable contributions [New paragraph 82AAT(1B)(b)];

(c)

a subsection 82AAT(1A) notice cannot be withdrawn or revoked.

This will ensure that the fund can rely on notices and therefore include contributions as taxable contributions with some degree of certainty [New paragraph 82AAT(1B)(c)].

However, the amount covered by a subsection 82AAT(1A) notice can be reduced at any time (provided the person is still a member of the fund). The member must ensure that the amount covered by a subsection 82AAT(1A) notice is not reduced below the amount that has been allowed as a deduction.

Consequently, if a member claims a deduction for contributions and all or part of that claim is subsequently disallowed, the member can notify the fund which can adjust its taxable contributions accordingly.

No adjustment can be made once a member leaves a fund because once benefits have been paid out it is too late for the fund to make the necessary adjustments [New subsection 82AAT(1C)].

Notices must be given in the form and manner approved in writing by the Commissioner of Taxation [New subsection 82AAT(1D)]. The essential information to be included in a subsection 82AAT(1A) notice is the amount of contributions that the member is intending to claim as a tax deduction and confirmation that the amount covered by the notice has not been included in an earlier notice.

If a person has not received the necessary acknowledgment from the fund, they are not entitled to a deduction for their contributions. The acknowledgment must be given by the trustees of the fund without delay [New subsection 82AAT(1A)].

Generally speaking, the acknowledgment will be considered to have been given without delay if the trustee of a fund acknowledges a subsection 82AAT(1A) notice:

•

by 30 June of the financial year in which the contribution to which the subsection 82AAT(1A) notice relates is made; or

•

within 30 days of receipt,

whichever is later.

Failure by the trustees to give an acknowledgment will be a breach of section 8C of the Taxation Administration Act 1953. If a person gives a notice and receives the necessary acknowledgment after they have received their notice of assessment for the relevant year of income, the Commissioner may amend the assessment to allow the deduction [New subsection 82AAT(1E].

Taxable contributions for complying superannuation funds

A complying superannuation fund will include personal superannuation contributions received in a particular year in its taxable contributions for the year of income only if it has received a subsection 82AAT(1A) notice from the member before the date on which the trustee lodges the fund's income tax return for the year. Contributions do not include ETPs that have been rolled-over [New subparagraph 274(1)(b)(i)].

If a subsection 82AAT(1A) notice is received by the fund after the fund has lodged its income tax return for the year in which the contributions were made, the fund will include the contributions in its taxable contributions in the year the notice is given [New subsection 274(2)].

If an amount has been included as taxable contributions of a complying superannuation fund and the member subsequently gives a subsection 82AAT(1C) notice reducing the amount covered by a subsection 82AAT(1A) notice, the fund can claim a deduction for the amount covered in the subsection 82AAT(1C) notice in the year the notice is received. However, if the fund is unable to fully utilise the deduction because, for example, it has no assessable income, the fund can seek to have the assessment for the year in which the contribution was included in its assessable income amended [Amended section 276].

Application of the proposals

The new notice arrangements apply to personal superannuation contributions made to a fund on or after 1 July 1992, other than contributions made by a person who has ceased to be a member of the fund before the date of Royal Assent of the Bill [Clause 11] . Therefore, taxpayers who are members of the fund after the date of Royal Assent of the Bill will qualify for a deduction in the 1992-93 year of income only if they give the fund a subsection 82AAT(1A) notice and receive the necessary acknowledgment from the fund.

The deductibility of personal superannuation contributions by taxpayers who leave a fund prior to the date of Royal Assent will be determined under the existing law. This is because taxpayers who have left the fund will have been paid out benefits on the basis of the current law and the current understanding of the fund in relation to the tax treatment of contributions.

Example 1

Jacqui is a self-employed person who contributes $12000 to a complying superannuation fund in the 1992-93 income year. On 30 June 1993 she gives the fund a subsection 82AAT(1A) notice stating that she is going to claim a deduction of $9750 (ie, $3000 plus 75% of $9000) in respect of her personal superannuation contributions. The fund acknowledges the notice immediately upon receipt and indicates that it will include $9750 in its taxable contributions. Jacqui complies with all the requirements in section 82AAT and is entitled to a deduction of $9750 for her personal superannuation contributions.

As the fund received the notice prior to lodging its return for the 1992-93 income year it will include the $9750 in its taxable contributions for that income year.

Example 2

Robert is a self-employed person who contributes $5000 to a complying superannuation fund in the 1992-93 year of income. On 1 May 1992 he gives a subsection 82AAT(1A) notice to the fund stating that he is going to claim a deduction of $3000 of his personal superannuation contributions for the year. The fund immediately acknowledges the notice and indicates that it will include $3000 in its taxable contributions for the year.

Robert lodges his income tax return at the end of October and realises that he is entitled to claim more than $3000 as an income tax deduction for the year. He gives the fund an additional subsection 82AAT(1A) notice for $2000. The fund acknowledges the notice and Robert makes a claim for $5000 for personal superannuation contributions. As the second notice was given to the fund after it lodged its return for the 1992-93 income year, the fund will include the $2000 in its taxable contributions for the 1993-94 income year.

Following an audit of his return in September 1995, Robert's claim is reduced by $500 to $4500 (ie, $3000 plus 75% of $2000). Robert gives the fund a subsection 82AAT(1C) notice for $500 to the fund reducing the amount included in the second subsection 82AAT(1A) notice to $1500. The fund claims a section 276 deduction for $500 in the 1995-96 income year for the excess contributions previously included in its taxable contributions.

Example 3

Suzanne works for an employer for the first two months of the income year. During that time her employer makes contributions to a superannuation fund. She also contributes to the same fund. After leaving the employer she becomes a self-employed person. She takes an ETP from her previous employer's fund and rolls the ETP over to a personal superannuation fund. That part of the ETP representing a return of Suzanne's contributions are treated as undeducted contributions.

At the end of the income year Suzanne realises that she qualifies as a substantially self-employed person (ie, less than 10% of her assessable income was derived from her employment). She wants to claim a deduction for her contributions to her former employer's fund and seeks to give a subsection 82AAT(1A) notice in respect of those contributions to the fund. As Suzanne has left the fund the notice is invalid and cannot be accepted by the fund. Consequently Suzanne is unable to claim a deduction for her contributions to the employer's fund.