Private ruling: Concessional contributions cap
Published: September 2014
Ruling period: Year ending 30 June 2015
Date scheme commenced: I July 2014

Ruling: Q1: Will productivity contributions paid by your employer into a defined benefit fund (the Fund) count towards your concessional contributions cap in accordance with section 291-20 of the Income Tax Assessment Act 1997 (ITAA 1997)? | A1: Yes.

Relevant facts and circumstances: You are under the age of 55 years. You are a member of an unfunded defined benefit fund (the Fund). You have commenced a salary sacrifice arrangement with an employer to sacrifice salary in return for employer superannuation contributions to be made to the Fund. The employer productivity contributions is currently a specified percentage of your salary and will be made to the Fund on your behalf during the 2014-15 income year.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 291-20 | Income Tax Assessment Act 1997 Subsection 291-20(1) | Income Tax Assessment Act 1997 Subsection 291-20(2) | Income Tax Assessment Act 1997 Section 291-25 | Income Tax Assessment Act 1997 Subsection 291-25(2) | Income Tax Assessment Act 1997 Paragraph 291-25(2)(c) | Income Tax Assessment Act 1997 Subsection 291-25(3) | Income Tax Assessment Act 1997 Section 291-165 | Income Tax Assessment Act 1997 Section 291-170 | Income Tax Assessment Act 1997 Subsection 291-170(1) | Income Tax Assessment Act 1997 Subsection 291-170(2) | Income Tax (Transitional Provisions) Act 1997 Section 291-20 | Income Tax (Transitional Provisions) Act 1997 Subsection 291-20(1) | Income Tax Regulations 1997 Section 1.6 of Schedule 1A | Income Tax Regulations 1997 Section 1.6 of Schedule 1A | Income Tax Regulations 1997 Subsection 292-170.02(2) Summary | The contributions made under the salary sacrifice arrangement and employer productivity contributions paid by your employer into the Fund count towards your concessional contributions cap of $35,000 for the 2014-15 income year. | Detailed reasoning | Concessional contributions | Concessional contributions are defined in section 291-25 of the Income Tax Assessment Act 1997 (ITAA 1997). Relevantly, subsection 295-25(2) provides that a contribution will be a person's concessional contribution in a financial year if: a. it is made in the financial year to a complying superannuation fund in respect of the person; and | b. it is included in the assessable income of the superannuation fund; and | c. it is not specifically excluded from being a concessional contribution under paragraph 291-25(2)(c) of the ITAA 1997. | Under paragraph 291-25(2)(c) of the ITAA 1997, concessional contributions do not include: | n transfers from foreign superannuation funds; | n roll-over superannuation benefits paid for your benefit or at your discretion or request that consist of an element untaxed in the fund that does not exceed the untaxed roll-over amount for that individual; and | n a contribution made to a constitutionally protected fund (CPF). | Conditions set out in subsection 291-25(2) of the ITAA 1997 are cumulative in nature. Namely, for an amount to count as a concessional contribution, all the conditions set out in that provision must be met. | Concessional contributions include: | • employer contributions such as: | n compulsory super guarantee contributions | n any additional voluntary super contributions your employer may make | n the equivalent of your employer contributions under a defined benefit scheme as determined by the trustee | n salary sacrifice amounts | • personal contributions by an eligible person (such as a self-employed person) that are allowed as an income tax deduction. | Concessional contributions cap | The concessional contributions cap is the limit on the amount of concessional contributions you can make each year before you pay extra tax. | Excess concessional contributions for a financial year are defined in subsection 291-20(1) of the ITAA 1997 as an amount of a person's concessional contributions for a year that exceed the person's concessional contributions cap for the year. | Concessional contributions cap is defined in subsection 291-20(2) of the ITAA 1997. For the 2013-14 financial year, the cap is set at $25,000. For the 2014-15 or later financial year, the cap amount is indexed annually. | However, there are transitional rules for older Australians as outlined in section 291-20 of the Income Tax (Transitional Provisions) Act 1997 (ITTPA 1997). Subsection 291-20(1) of ITTPA 1997 states: | Despite section 291-20 of the Income Tax Assessment Act 1997 , your concessional contributions cap is $35,000: (a) for the 2013-14 financial year - if you are 59 years or over on 30 June 2013; or | (b) for the 2014-15 financial year or a later financial year - if you are 49 years or over on the last day of the previous financial year. | Note: | This amount is not indexed. | In this case, the concessional contribution cap of $35,000 applies to you in the 2014-15 income year as you had reached over 50 years. | The Australian Taxation Office (ATO) subsequently published a precedential view under Interpretative Decision ATO ID 2008/162 (the ATO ID), titled 'Superannuation Excess Contributions Tax: notional taxed contributions - PSS Defined benefit Interest' which refer to concessional contributions and defined benefit interests. | According to section 291-165 of the ITAA 1997, the amount of an individual's concessional contributions for a financial year is the sum of: | (a) the contributions covered by subsection 291-25(2), and the amounts covered by subsection 291-25(3), to the extent to which they do not relate to the *defined benefit interest or interests; and | (b) your *notional taxed contributions for the financial year in respect of the defined benefit interest or interests. | Notional taxed contributions are amounts specified under section 291-170 of the ITAA 1997. Subsection 291-170(1) of the ITAA 1997 provides that a person's 'notional taxed contributions' for a financial year in respect of a defined benefit interest has the meaning given in the regulations. Subsection 291-170(2) of the ITAA 1997 indicates that the regulations made for determining a person's notional taxed contributions may also provide the method for calculating the amount of notional taxed contributions. | For superannuation funds with five or more defined benefit members, subregulation 292-170.02(2) of the Income Tax Assessment Regulations 1997 (ITAR 1997) specifies that the notional taxed contributions are contributions determined by the trustee to be notional taxed contributions, using the method set out in Schedule 1A to the ITAR 1997. The relevant method for the Fund is contained in section 1.6 of Schedule 1A to the ITAR 1997. It provides: | 1.6 Standard method for working out amount of notional taxed contributions in respect of a benefit category for an accruing member of the benefit category if the fund benefit is wholly sourced from an accumulation of contributions made in respect of the member . | If the fund benefit is wholly sourced from an accumulation of concessional contributions made to a superannuation fund in respect of a member or earnings on such contributions, or an accumulation of member contributions or earnings on such contributions, the amount of notional taxed contributions for an accruing member for a financial year is the amount of concessional contributions made to the superannuation fund in respect of the member during the financial year. | Section 1.5 of Schedule 1A to the ITAR 1997 explains that a 'fund benefit' as referred to in section 1.6 of Schedule 1A to the ITAR 1997 is that part of a defined benefit interest which is sourced from contributions made into a superannuation fund or earnings on such contributions. | In this case, the fund benefit consists of the member's own contributions, the employer productivity contributions and the earnings on those contributions (that is, the member component and the productivity component). As the amount paid from consolidated revenue - the employer-financed component - is not sourced from an accumulation of contributions made in respect of the member, it is not part of the fund benefit. | Section 1.6 of Schedule 1A to the ITAR 1997 applies because the fund benefit is wholly sourced from an accumulation of contributions made in respect of the member. Therefore, in accordance with section 1.6, the amount of notional taxed contributions is the amount of concessional contributions made to the Fund in respect of the member during the financial year. | The concessional contributions are the contributions made in respect of the member and included in the assessable income of the superannuation provider but not specifically excluded under paragraph 291-25(2)(c) of the ITAA 1997. In the Fund this is the employer productivity contributions (member contributions are non-concessional contributions). Consequently, the notional taxed contributions in respect of a person's interest in the Fund is equal to the amount of the employer productivity contributions made in a financial year. | In this case, the employer productivity contributions made in the 2014-15 income year is the amount of the notional taxed contributions in respect of your membership with the Fund. | In accordance with section 291-165 of the ITAA 1997, these notional taxed contributions, if any, are concessional contributions and may be taken into account for the purposes of your concessional contributions cap for the financial year. | Your total concessional contributions for the 2014-15 income year are the sum of the employer contributions made under the salary arrangement to the accumulation interest for this year and the employer productivity contributions made to the Fund for this income year. | Other relevant comments | If you require further information in regard to notional taxed contributions in respect of your interest in the Fund, you will need to contact the Fund, as it is the trustee of the Fund which determines the notional taxed contributions.