ATO ID 2008/89: Excess concessional contributions tax: notional taxed contributions - non-accruing member
Date of decision: 5 May 2008
Year of income: Year ended 30 June 2008
Business line: Superannuation

Issue
Is a defined benefit fund member a non-accruing member of the superannuation fund for the whole of the financial year where the member has a benefit entitlement in the fund, but no employer-provided benefits have accrued to the member and the rules of the fund provide that the member's benefit is to increase at the same rate at which their final average salary (on which the member's benefit is based) increases?

Decision
Yes. For the purposes of paragraph 292-170.04(3)(b) of the Income Tax Assessment Regulations 1997 (ITAR 1997), the defined benefit fund member is a non-accruing member of the fund for the whole financial year.

Facts
Upon retirement, a defined benefit fund member will be entitled to receive a defined benefit pension equal to 2% of their final average salary (FAS) for each year of service up to age 65, subject to a maximum of 60% of their FAS. The member's FAS is calculated as the average of their annual salaries over the three years prior to leaving employment. The member joined the defined benefit fund at age 30 and reached their maximum accrued pension (that is, 60% of FAS) at age 60 after 30 years of service. The member has remained in service with the same employer after reaching age 60, but has not accrued any further pension multiple since reaching 30 years of service with the employer. The member's defined benefit on leaving employment will be a pension of 60% of FAS, where FAS is calculated at the date of leaving employment. Due to an increasing annual salary, the member's FAS has increased each year since reaching age 60. However, the member's accrued pension multiple has not increased since reaching 30 years of service. During the whole financial year(s) occurring after the completion of the 30th year of service until leaving employment, no employer-provided benefits accrue to the member for the whole of those financial year(s).

Reasons for decision
Summary: Notional taxed contributions are the contributions which are used to determine the amount of concessional contributions in respect of a person's defined benefit interest for excess concessional contributions tax. Regulation 292-170.04 of the ITAR 1997 sets out circumstances in which the amount of the notional taxed contributions for a financial year in respect of the defined benefit interest of a member of a superannuation fund is nil. The circumstance addressed in subregulation 292-170.04(3) of the ITAR 1997 requires, amongst other criteria, that the member be a non-accruing member of the fund for the whole of the financial year. In effect, paragraph 292-170.04(5)(a) of the ITAR 1997 and subparagraph 292-170.04(5)(b)(iv) of the ITAR 1997 combine to read: ... a defined benefit member of a superannuation fund is a non-accruing member of the fund for the whole of a financial year if, for the whole of the financial year...the member has a benefit entitlement in the fund, but no employer-provided benefits have accrued to the member; and...the rules of the fund provide that the benefit:...is to increase at the rate (if any) at which the salary on which the member's benefit is based increases... For the purposes of subparagraph 292-170.04(5)(b)(iv) of the ITAR 1997, it is accepted that the term 'salary' extends to final average salary. In the case at hand, the member has a benefit entitlement in the fund but no employer-provided benefits have accrued to the member, and the fund rules provide that the member's benefit is to increase at the rate at which the final average salary on which the member's benefit is based increases. Therefore the member is a non-accruing member of the fund.

Legislative references: Income Tax Regulations 1997 regulation 292-170.04 subregulation 292-170.04(3) paragraph 292-170.04(3)(b) paragraph 292-170.04(5)(a) subparagraph 292-170.04(5)(b)(iv)
Subject references: Concessional contributions Defined benefit superannuation funds Employer sponsored superannuation funds Excess concessional contributions Superannuation Superannuation excess contributions tax