Private ruling: concessional contributions
Date of advice: 10 December 2015
Published: February 2016

Ruling: Q1: 1. Where a superannuation income stream ceases as a result of the death of a member of a self-managed superannuation fund (the Fund), is the amount standing to the credit of the income stream account a reserve for the purposes of regulation 292-25.01 of the Income Tax Assessment Regulations 1997 (ITAR 1997)? 2. If the amount standing to the credit of the income stream account is a reserve, are amounts allocated from the reserve to the members of the Fund a concessional contribution as defined in section 291-25 of the Income tax Assessment Act 1997 (ITAA 1997)? Advice 1. Yes 2. Yes, unless conditions outlined in subregulation 292-25.01(4) of the ITAA 1997 are met.

Relevant facts and circumstances: Your advice is based on the facts stated in the description of the scheme that is set out below. If your circumstances are significantly different from these facts, this advice has no effect and you cannot rely on it. The fact sheet has more information about relying on ATO advice. The Fund is a single member self-managed superannuation fund. The sole member of the Fund (the Member) was in receipt of a superannuation income stream (the Pension) that met the requirements of subregulation 1.06(7) of the Superannuation Industry (Supervision) Regulations 1994 (SISR) . Recently, the Member died and, as a result, the Pension ceased. At that time, a certain amount (the Amount) remained against the Pension account. The Amount is held in an unallocated reserve of the Fund. The Member's adult non-dependent children (the Children), intend to become members and trustees (the Trustees) of the Fund. The Trustees intend to transfer the amount from the unallocated reserve to the member's accounts in equal shares.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 291-25 and | Income Tax Assessment Regulations 1997 Regulation 292-25.01.

Reasons for decision: Summary: The Amount standing to the credit of the Pension account when the Pension ceased is an amount that is available/belongs to Trustee not the Member. Consequently, it is a reserve for the purposes of regulation 292-25.01 of the ITAR 1997. Any amounts allocated from this reserve to the members of the Fund will be concessional contribution as defined in section 291-25 of the ITAA 1997 unless the amount is allocated to every member of the Fund in an fair and reasonable manner and the amount that is allocated for the relevant financial year is less than 5% of the value of the member's interest in the Fund. | Detailed Reasoning - Meaning of 'reserve': In accordance with regulation 292-25.01 of the ITAR 1997, an amount that is allocated from a reserve to a member will generally be a concessional contribution for the member unless it meets the conditions outlined in subregulation 292-25.01(4) of the ITAA 1997 which provide for exceptions to transfers from reserves being considered concessional contributions. The term 'reserve' is not defined in the ITAR 1997 or the ITAA 1997. Therefore, the meaning of 'reserve' is to be determined by reference to its ordinary meaning and the context in which it is used. In ATO Interpretative Decision ATO ID 2015/22 Superannuation ECT: concessional contributions - allocation from 'pension reserve account' supporting 'complying lifetime pension (ATOID 2015/22), the Commissioner considered, in part, whether the amount standing to the credit of a 'pension account' maintained in relation to the complying lifetime pension as the superannuation lump sum (resulting from the commutation of that pension) that is transferred to commence a 'market linked pension' payable to the member would be a concessional contribution of the member. The Commissioner's view, as stated in ATO ID 2015/22, is that a complying lifetime pension account represents a reserve for the purposes of regulation 292-25.01 of the ITAR 1997 because it is an amount that is available to the trustee of the fund, not the member, to satisfy the trustee's liability to pay the complying lifetime pension. In this case, a pension which meets the standards of subregulation 1.06(7) of the SISR was paid by the Fund to the Member. In accordance with paragraph 1.06(7) (f) of the SISR, a pension that meets the standards of that subregulation does not have a residual capital value. Therefore, when the Pension ceased, any amount standing to the credit of the Pension account cannot not be the residual capital value of the Pension that is to be returned to the Member's account. Rather, it is an amount that is available/belongs to the trustee of the Fund to be dealt with at trustee's discretion. Therefore, based on the above, the Amount is a reserve for the purposes of regulation 292-25.01 of the ITAR 1997. | Detailed Reasoning - Concessional contributions: Subsection 291-25(1) of the ITAA 1997 provides that a person's concessional contributions for a financial year is the sum of each contribution covered under subsection 291-25(2) of the ITAA 1997 and each amount covered under subsection 291-25(3) of the ITAA 1997. Contributions which are covered by subsection 291-25(2) of the ITAA 1997 are generally contributions made by or for a person to a complying superannuation plan and are included in the assessable income of a superannuation provider. Subsection 291-25(3) of the ITAA 1997 includes in a person's concessional contributions for a financial year an amount in a complying superannuation plan that is allocated for the person for the year in accordance with the conditions specified in the regulations. Provisions in the Act that inserted Division 291 into the ITAA 1997 operate to ensure that the regulations applying to concessional contributions in Division 292 of the ITAA 1997 continue to apply to Division 291. Consequently, regulation 292-25.01 of the ITAR 1997 sets out these conditions. Relevantly, paragraph 292-25.01(4) (b) of the ITAR 1997 provides that an amount that is allocated from a reserve will be treated as concessional contributions unless: (i) the amount is allocated, in a fair and reasonable manner: (A) to an account for every member of the complying superannuation plan; or (B) if the member is a member of a class of members of the complying superannuation plan, and the amount in the reserve relates only to that class of members - to an account for every member of the class; and (ii) the amount that is allocated for the financial year is less than 5% of the value of the member's interest in the complying superannuation plan at the time of allocation; or Therefore, any amounts transferred to any of the Children in their capacity as members of the Fund from the unallocated reserve that do not meet the exception in subregulation 292-25.01(4) of the ITAA 1997 will form part of the their concessional contributions for the relevant financial year in accordance with subsection 291-25(3) of the ITAA 1997. Neither section 291-25 of the ITAA 1997 nor regulation 292-25.01 of the ITAR 1997 provide the Commissioner with a discretion to modify the treatment of allocations from a reserve in the present circumstances.

This advice applies for the following periods: Income year ended 30 June 2015; | Income year ending 30 June 2016; and | Income year ending 30 June 2017