Private ruling: Non-concessional contributions - payment for person injury.
Published: May 2012

Ruling: Q1: Will the injury payout amount to be contributed to a complying superannuation fund be excluded from your non-concessional contributions cap for the 2011-12 income year under section 292-90 of the Income Tax Assessment Act 1997 (ITAA 1997)? Advice No.

Relevant facts and circumstances: You are under 55 years of age. You were employed with a company (the Company). In the 2009-10 income year an incident at work resulted in you suffering a head injury. In the 2011-12 income year, the full and final settlement funds of $X were deposited into your bank account for your claim against the Company. Soon after you received the payment, you met with your financial advisor, where he recommended the funds be contributed to your superannuation fund. Your financial advisor then liaised with your super fund to determine the requirements/ evidence required for Total and Permanent Disablement (TPD). The fund advised the Trustees of the super fund had already completed their final board meeting for the 2011 year and that you would have to wait until the 2012 calendar year. When contact was made with the neurosurgeon offices, you were advised that they had commenced their Christmas leave and that you could contact them in the New Year. For three months you were overseas on a family holiday. In the new year you were advised of the requirements for TPD by the Trustee of the super fund. Contact was then attempted with the two neurosurgeons; Dr 1 and Dr 2. Due to an original medical report dated in the 2010-11 income year by Dr 2 stating: An assessment of his residual disability in not appropriate at this stage and should be delayed until the 2012 calendar year. you were delayed in obtaining a medical certificate for the purposes of your TPD assessment. When contact was made, your financial advisor was advised both neurosurgeons were on leave but to email the forms to be completed by the doctors anyway so they could complete them on their return. Your financial advisor was informed that because your financial advisor's company did not book and pay for the original assessment, they were not entitled to request such information and therefore Dr 1 could not respond. Your financial advisor then queried the costs for the completion of the required form if it were arranged by you and indicated the urgency involved in getting the forms completed. Your financial advisor then requested an update from D2 on the progress of the forms. Dr 2 then advised that the form has been completed and mail to him. This was then forwarded on to the super fund. Your financial advisor then contacted Dr 1 regarding the completion of the required forms. He then followed up on this query when he had not heard from Dr 1 and again a little later when he still had not received the completed forms. The completed forms from Dr 1 were forwarded onto the super fund. During the 2011-12 income year, Your financial advisor received correspondence from the super fund requesting the completion of other forms and a letter requesting that you be assessed as TPD. It was then confirmed by the super fund that you had met the conditions of early release. You now seek confirmation from the ATO that you can contribute the injury funds as a lump sum to your super fund and that they not be counted towards your non concessional contributions cap.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 292-80. | Income Tax Assessment Act 1997 Section 292-85. | Income Tax Assessment Act 1997 Section 292-90. | Income Tax Assessment Act 1997 Subsection 292-90(2). | Income Tax Assessment Act 1997 Paragraph 292-90(2)(c). | Income Tax Assessment Act 1997 Section 292-95. | Income Tax Assessment Act 1997 Subsection 292-95(1). | Income Tax Assessment Act 1997 Paragraph 292-95(1)(b). | Income Tax Assessment Act 1997 Subsection 292-95(2). | Income Tax Assessment Act 1997 Subsection 292-95(3). | Income Tax Assessment Act 1997 Subsection 292-95(4). | Income Tax Assessment Act 1997 Subsection 292-95(5). Summary | As the necessary conditions have not been satisfied, the contribution you intend to make to your superannuation fund from your personal injury funds will not be excluded from your non-concessional contributions cap for the 2011-12 income year. | Detailed reasoning | Non-concessional contributions made to superannuation funds are subject to an annual cap in accordance with subsection 292-85(2) of the Income Tax Assessment Act 1997 (ITAA 1997). For the 2011-12 financial year, the non-concessional contributions cap is $150,000. A person will be liable to pay excess non-concessional contributions tax at the rate of 46.5% on non-concessional contributions over the cap (sections 292-80 and 292-85 of the ITAA 1997). | Non-concessional contributions for a financial year are defined under section 292-90 of the ITAA 1997 and include: | · personal contributions for which an income tax deduction is not claimed; | · contributions a person's spouse makes to their superannuation fund account; | · transfers from foreign superannuation funds (excluding amounts included in the fund's assessable income) and | · excess concessional contributions (if any) for the financial year. | Exclusions from the non-concessional contributions cap | Under subsection 292-90(2) of the ITAA 1997 a number of contribution types are excluded from being non-concessional contributions for a financial year. In particular, subparagraph 292-90(2)(c)(ii) excludes a contribution covered under section 292-95. | Section 292-95 of the ITAA 1997 deals with contributions arising from settlements or orders for personal injury. The contribution in this case has arisen because of a consent judgment in respect of compensation personal injury to you. We will need to determine if the contribution to be made to the superannuation fund falls under this section. | Conditions to be satisfied | Section 292-95 of the ITAA 1997 states: | (1) A contribution is covered under this section if: | (a) the contribution arises from: | (i) the settlement of a claim that satisfies the conditions in subsection (3); or | (ii) the settlement of a claim in relation to a personal injury suffered by you under a law of the Commonwealth or of a State or Territory relating to workers compensation; or | (iii) the order of a court that satisfies the conditions in subsection (4); and | (b) the contribution is made within 90 days after the later of the following: | (i) the day of receipt of the payment from which the contribution is made; or | (ii) in relation to subparagraph (a)(i) or (iii) - the day mentioned in subsection (2); and | (c) 2 legally qualified medical practitioners have certified that, because of the personal injury, it is unlikely that you can ever be *gainfully employed in a capacity for which you are reasonably qualified because of education, experience or training; and | (d) no later than the time the contribution is made to a *superannuation plan, you or your *legal personal representative notify the *superannuation provider in relation to the plan, in the *approved form, that this section is to apply to the contribution. | (2) For the purposes of subparagraph (1)(b)(ii), the day is: | (a) for a settlement mentioned in subparagraph (a)(i): | (i) the day on which the agreement mentioned in paragraph (3)(c) was entered into; or | (j) if that agreement depends, for its effectiveness, on being approved (however described) by an order of a court, or on being embodied in a consent order made by a court - the day on which that order was made; or | (b) for an order mentioned in subparagraph (1)(a)(iii) - the day on which the order was made. | (3) For the purposes of subparagraph (1)(a)(i), the conditions are as follows: | (a) the claim: | (i) is for compensation or damages for, or in respect of, personal injury suffered by you; and | (j) is made by you or your *legal personal representative; | (b) the claim is based on the commission of a wrong, or on a right created by statute; | (c) the settlement takes the form of a written agreement between the parties to the claim (whether or not that agreement is approved by an order of a court, or is embodied in a consent order made by a court). | (4) For the purposes of subparagraph (1)(a)(iii), the conditions are as follows: | (a) the order is made in respect of a claim that: | (i) is for compensation or damages for, or in respect of, personal injury suffered by you; and | (j) is made by you or your *legal personal representative; | (b) the claim is based on the commission of a wrong, or on a right created by statute; | (c) the order is not an order approving or endorsing an agreement as mentioned in paragraph (3)(c). | (5) If a claim is both: | (a) for compensation or damages for personal injury suffered by you; and | (b) for some other remedy (for example, compensation or damages for loss of, or damage to, property); | Subsections (3) and (4) apply to the claim, but only to the extent that it relates to the compensation or damages referred to in paragraph (a), and only to amounts that, in the settlement agreement, or in the order, are identified as being solely in payment of that compensation or those damages. | As this contribution arises from a settlement in terms of subparagraph 292-95(1)(a)(i), subsection 292-95(3) outlines the conditions that must be satisfied:- | · the claim is for compensation or damages for a personal injury suffered by the contributor and has been made by the person or their legal representative; and | · the claim is based on the commission of a wrong or on a right created by statute; and | · the settlement is in the form of a written agreement between the parties. | In addition, for a contribution to fall under this section the following conditions must also be satisfied:- | · the contribution arises from an order or settlement for compensation in relation to a personal injury or a settlement in relation to a personal injury relating to workers compensation; | · the contribution is made within 90 days of the later of the payment being received or the order coming into effect; | · two legally qualified medical practitioners have certified that as a result of the injury the injured person is unlikely to ever be able to be gainfully employed in a capacity for which they were reasonably qualified because of education, experience or training; and | · a notice in the approved form is provided to the trustee of the superannuation fund no later than the time the contribution is made stating that section 292-95 of the ITAA 1997 applies to the contribution. | The contribution being made within the 90 day period | To exclude a contribution made from the proceeds of a consent judgment by the Court, subsection 292-95(1)(b) of the ITAA 1997 requires the contribution to be made to a complying superannuation fund within 90 days of the later of: | · the day of receipt of the payment from which the contribution is made, or | · the day on which the consent judgment was made. | The Explanatory Memorandum to the Tax Laws Amendment (Simplified Superannuation) Bill 2006, which inserted the provision, described this requirement as follows at paragraph 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 the amount of $X was paid into your bank account towards the end of the 2011 calendar year. Therefore, the 90 day period commenced on this date. | Due to the delay you encountered in obtaining the medical certificates from your medical practitioners, you did not receive confirmation from your super fund that you had met the conditions for early release until the 90 days had lapsed. | We acknowledge you were prompt in engaging with your financial advisor to obtain advice in relation to the treatment of your injury funds. We also acknowledge the effort put in by your financial advisor to obtain the required forms from the medical practitioners by the 90 day cut off and that these delays were out of your control. However, section 292-95 of ITAA 1997 does not provide the Commissioner any discretion to extend the 90 day time limit to make the contribution to your super fund. | The contribution you intend to make to your super fund does not meet the criteria in paragraph 292-95(1)(b) and therefore as not all of the conditions have been satisfied, the contribution will not be excluded from your non-concessional contributions cap.


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