ATO ID 2008/142: Excess contributions tax: non-concessional contributions - personal injury payment - contribution to fund within 90 days of receiving a payment from Public Trustee (NSW)
Date of decision: 19 September 2008
Year of income: Year ended 30 June 2009
Business line: Superannuation

Issue
In this case, does the 90 day period a person is allowed by subparagraph 292-95(1)(b)(i) of the Income Tax Assessment Act 1997 (ITAA 1997) to make a non-concessional superannuation contribution from a court ordered personal injuries payment, commence when a payment is made to the person by the Public Trustee (NSW)?

Decision
No. The 90 day period commenced when the payment was made to the Public Trustee (NSW).

Facts
The taxpayer was injured in a car accident as a child. In 2002, the taxpayer was awarded damages pursuant to a court order and these were paid into court. A short time later the damages sum less statutory repayments was paid to the Public Trustee (NSW) to be held in trust for the taxpayer. Some of the money was used by the Public Trustee to pay for the taxpayer's care, education and housing. In 2008, the taxpayer attained 18 years. The Public Trustee (NSW) has ascertained that the taxpayer is capable of managing his own affairs and will now pay the balance of the damages award to the taxpayer. The taxpayer proposes to contribute some of the money to a superannuation fund and has sought advice from the Tax Office as to whether the amount can be excluded from the non-concessional contributions cap under subparagraph 292-90(2)(c)(ii) and section 292-95 of the ITAA 1997.

Reasons for decision
Summary: The combined effect of subparagraphs 292-90(2)(c)(ii) and 292-95(1)(b)(i) of the ITAA 1997 is to ensure that a contribution made from a person's personal injury damages is excluded from the person's non-concessional contributions. This means that a person can contribute the proceeds of a personal injuries settlement or court order to superannuation without breaching the non-concessional contributions cap. However, to exclude a contribution made from the proceeds of a court ordered damages payment, paragraph 292-95(1)(b) of the ITAA 1997 requires the contribution to be made within 90 days of the later of the day: The Explanatory Memorandum to the Tax Laws Amendment (Simplified Superannuation) Bill 2006 described this requirement as follows: 1.96 The contribution must be made to a superannuation fund within 90 days of the payment being received or the structured settlement or order coming in effect, whichever is later. [Schedule 1, item 1, paragraph 292-95(1)(b)] In this case, no superannuation contribution had been made within 90 days of the court order. Furthermore, no superannuation contribution had been made within 90 days of the amount being paid into court. However, while the intent of paragraph 292-95(1)(b) of the ITAA 1997 is to limit the time between the court order or receipt of the payment, and the making of the contribution, the 'day of receipt of the payment' is not necessarily limited to the day on which the money is originally paid into court. This is because money is often required to be paid into court before being paid out to persons such as the Public Trustee or the Protective Commissioner as manager of a person's estate. It is therefore considered that the day of receipt of the payment referred to in subparagraph 292-95(1)(b)(i) of the ITAA 1997 is the day upon which the person who is entitled to the payment under the court order or settlement receives the payment. The person who is entitled to the payment includes an injured person's legal personal representative. In this case, paragraph 4(c) of the Damages (Infants and Persons of Unsound Mind) Act 1929 (NSW), which was the legislation applying at the time, required that the damages paid into court be paid out to the Public Trustee (NSW) to hold on behalf of a minor. Had the taxpayer been considered a person of unsound mind, the damages would have been paid to the manager of his or her estate. Section 5 of the Damages (Infants and Persons of Unsound Mind) Act 1929 (NSW), required the Public Trustee (NSW) to hold and apply the money for the maintenance and education or otherwise for the benefit of the minor. Note 1: the Damages (Infants and Persons of Unsound Mind) Act 1929 (NSW) was repealed by Schedule 4 to the Civil Procedure Act 2005 (NSW) with effect from 15 August 2005. Sections 77, 78 and 79 of that Act contain provisions similar in effect to section 5 of the Damages (Infants and Persons of Unsound Mind) Act 1929 (NSW). Subsection 12(1) of the Public Trustee Act 1913 (NSW) states that, among other roles, the Public Trustee can be appointed and act under that name as a trustee, as financial manager of the estate of a managed person, or as guardian or receiver of the estate of a minor. Note 2: the Public Trustee Act 1913 (NSW) was repealed by section 4 of the NSW Trustee and Guardian Act 2009 (No.49) with effect from 1 July 2009. Section 11 of that Act contains provisions similar in effect to section 12 of the Public Trustee Act 1913 (NSW). In their publication A Guide for Trusts, A Guide for Parents and Carers , the Public Trustee (NSW) states: A Trustee takes responsibility for managing the funds awarded to the person by the Court, generally until the person turns 18 years of age. ...Fund's may be released for the person's benefit while the Trust continues. This is generally until a child turns 18 years, but can continue if a person is not able to look after their own affairs. In the current case the funds were held on trust by the Public Trustee (NSW) for the taxpayer. The possession of trust property by a trustee is, in equity, the possession of trust property by the beneficiary. Paragraph 5 of Taxation Ruling IT 316 (Minor beneficiaries: Court or damages trusts) states: By the very nature of court trusts a minor beneficiary has an absolute indefeasible interest vested in possession both as to the capital and the income. He is under a disability in as much as the Supreme Court Acts prevent him from getting the money until he reaches his majority. For the purposes of subparagraph 292-95(1)(b)(i) of the ITAA 1997 'the day of receipt of the payment from which the contribution is made' is the day the court paid the money to the Public Trustee who, as the taxpayer's legal personal representative, was the person entitled to receive the payment pursuant to the relevant legislation that existed at the time. Therefore, a contribution made now from the money paid to the taxpayer by the Public Trustee (NSW) cannot be excluded from non-concessional contributions under subparagraph 292-90(2)(c)(ii) of the ITAA 1997.

Legislative references: Income Tax Assessment Act 1997 section 292-90 paragraph 292-90(2)(c) section 292-95 paragraph 292-95(1)(b)
Related ATO interpretative decisions: ATO ID 2007/224
Other references: Paragraph 1.96 of the Explanatory Memorandum to the Tax Laws Amendment (Simplified Superannuation) Bill 2006 A Guide for Trusts, A Guide for Parents and Carers (www.tag.nsw.gov.au)
Subject references: Non-concessional contributions Non-concessional contributions - personal injury payments Superannuation contributions Superannuation excess contributions tax