Interim use of reserves
Where a super fund has a right to seek compensation from a third party, the trustee of the super fund may allocate an amount from an operational risk reserve to a member's super interest in anticipation of the receipt of the compensation from the third party.
An amount allocated from a reserve to a member's super interest, subject to certain exceptions, is a concessional contribution under the Income Tax Assessment Regulations 1997. We will not treat an allocation from an operational risk reserve as a concessional contribution in circumstances where all of the following factors are present:
- the super fund has a right to seek compensation against a third party which the super fund exercises
- the trustee of the super fund allocates an amount from the operational risk reserve to a member's super interest in anticipation of receiving compensation from the third party
- the third party pays the super fund an amount of compensation
- the trustee of the super fund immediately allocates an amount to the operational risk reserve from the compensation amount received equal to the amount allocated to the member's super interest.
However, allocations from an operational risk reserve to a member’s super interest to satisfy a trustee’s obligation to reimburse or compensate a member that are not covered by an amount that will be recouped by the trustee from a third party would be considered to be a concessional contribution unless one of the exceptions set out in the regulations applies.
Payments where no right to seek compensation
An individual may hold the right to seek compensation from a third party and direct that the third party make payment of the compensation direct to a super fund. In these circumstances the payment results in the capital of the super fund being increased and is paid for the purpose of benefitting the member of the fund. Accordingly, the payment will be a personal non-concessional contribution paid to the superfund at the direction of the member of the super fund. However, the payment will be a concessional contribution if the member subsequently provides the super fund with a notice of intent to claim a deduction and the super fund provides the individual with a written acknowledgement.
Receiving a payment where neither the fund nor the member has a right to seek compensation is a concessional contribution. This is because the payment increases the capital of the super fund and is made for the purpose of benefiting one or more members of the fund or all the members in general.
See also:
- Compensation received by super funds from financial institutions and insurance providers
- Fees where no service is provided
- Deficient financial advice
- Overcharged insurance premiums
Find out about:
- Compensation paid to individuals for advice from financial institutions
- Taxation Ruling TR 95/35 – Income tax: capital gains: treatment of compensation receipts
- Taxation Ruling TR 2010/1 – Income tax: superannuation contributions
- Disposal – CGT event
- Amending an income tax return
- Fixing BAS mistakes or making adjustments
- Goods and Services Taxation Ruling GSTR 2001/4 – GST consequences of court order and out-of-court settlement
- Correcting GST errors