ATO ID 2001/3: Undeducted Purchase Price (UK AFPS)
Date of decision: 22 May 1998
Business line: Superannuation

Issue
Do pensions paid to former members of the UK Armed Forces Pensions Scheme (AFPS) have an undeducted purchase price?

Decision
The "pension abatement" does not constitute undeducted purchase price.

Facts
Members of the AFPS do not contribute directly to the AFPS. However an adjustment known as the 'pension abatement' is made to the recommended salaries to take into account the relative benefits over those available to civilians.

Reasons for decision
Summary: The taxpayer considered that the 'pension abatement' meant that members of the AFPS had purchased their pensions. However, the 'pension abatement' is not a contribution by the member. It is an employer contribution somewhat analogous to a salary sacrifice arrangement whereby the member receives a reduced salary in return for superannuation benefits. As such there is no undeducted purchase price of an AFPS pension.

Legislative references: Income Tax Assessment Act 1936 subsection 27A(1) subsection 27A(5C) section 27H
Related public rulings and determinations: TR 93/13
Subject references: Undeducted purchase price