Private ruling: Superannuation scheme
Date of advice: 14 April 2025
Published: 30 June 2025
Ruling period: Year ending 30 June 20YY | Year ending 30 June 20YY | Year ending 30 June 20YY | Year ending 30 June 20YY
Date scheme commenced: 1 July 20YY

Ruling: Q1: Upon the withdrawal of Entity A from the Scheme will regulation 292-90.02 of the Income Tax Assessment (1997 Act) Regulations 2021 apply to an allocation from a reserve of the Scheme that is less than 5% of the superannuation interest of every active member of Division 2 and Division 3 of Entity A's sub-fund? | A1: Yes.

Relevant facts and circumstances: The Scheme has four Divisions (three of which cover pre-privatisation members of X superannuation schemes, and which are now closed to new members) (Scheme Rules, r 6): • Division 2 - Lump Sum Scheme • Division 3 - Pension Scheme • Division 4 - RG Scheme • Division 5 - Accumulation Scheme Each division is further divided into Employer Divisions (Scheme Rules, r6A) referred to as Sub-schemes or sub-funds. The Scheme's assets and liabilities are apportioned (i.e. split) by Sub-scheme to determine each participating employer's funding position regarding its Defined Benefits (DB) liabilities, any underfunded exposure and resulting reserves. In addition to the (whole of scheme) financial statements for the Scheme, Sub-fund splits, showing the split of income, expenses, assets and liabilities by Employer are prepared at least annually (30 June each year) in line with the Sub-fund split Policy and agreed procedures. The most recent triannual actuarial report was prepared for the Scheme as a whole at 30 June 20XX. The Scheme's actuary also prepares a report titled Financial Position as at 30 June 20XX and Recommended Contributions for each sub-fund, including Entity A's sub-fund: The individual reports in relation to each sub-fund are only provided to the relevant employer and not shared with any other employers. The Scheme's actuary also takes the Divisions into account when determining the reserves for each Employer, as is evidenced by the following extract from the 20XX actuarial report: The allocation of the Scheme's net assets in this manner means that each Employer Division (Sub-fund) spanning defined benefit members in Division 2, 3 and 4 represents the assets relating to the benefits of members employed by the employer in each Employer Division (Scheme Rules, r 6A(2)). In additional to the legislative requirements to maintain Employer Divisions (i.e., Sub-funds) within the Scheme Rules, the Trustee maintains a Sub-fund split Policy which is reviewed and updated every 3 years. The Scheme is administered by an external administrator and transactions are separately identified as follows: • Within the administration systems based on codes maintained for each Employer; and • Within the Scheme's accounting records into pools based on the membership of each Division that each Employer has within the Scheme. Some Employers have already withdrawn from the Scheme, and they are identified as Withdrawn Employers. There are 4 current employers, including Entity A. Members within each Division are separately identified as belonging to an Employer. The legislative intent for the Scheme structure as per its Trust Deed and Scheme Rules is that each of the employers in the XX industry would be and is responsible for the sufficient funding of the defined benefit superannuation entitlements of their employees who are members of the Scheme (i.e. within their Employer Division (Sub-fund)), to the extent applicable across each of the defined benefit Divisions (i.e. Divisions 2, 3 and 4). In recognition of the multi-employer-focused nature of the Scheme, the Scheme Rules permit "excess assets" of a Division or Sub-fund (that is, net assets which are in excess of the liability for the accrued benefits in respect of that Division or Sub-fund, as determined by the Scheme's Actuary) to be transferred to another Division or Sub-fund nominated by the employer (Scheme Rules, rr 6A(5), (6)). Although that is not contemplated here as only the reserves identified as belonging to Entity A Sub-fund will be distributed to active members of Entity A sub-fund. In addition, retained members and life-time pensioners are considered separate classes of members within each Division of Entity's A sub-fund. Proposed withdrawal of Entity A as an Employer from the Scheme Entity A has announced it will decommission the XXXX in 20XX and give the remaining employees with active defined benefit entitlements, Entity A has advised that they wish to withdraw from the Scheme. The Scheme's Trust Deed allows an employer to withdraw from the Scheme when all active pre-privatisation members provide their consent to do so. Entity A's employees are members of the Scheme consent within the defined benefit Divisions 2 and 3 and accumulation Division 5. In consideration for their consent, Entity A is offering the X active members in Division 2 the option to commute their existing benefits to Accumulation (i.e., Division 5) benefits. Entity A wishes to withdraw from the Scheme in early 202X, and in consideration for employee's consent that is required under s 17(2) of the Trust Deed and r 6B(5) of the Scheme Rules: • all X employees in Division 2 will be offered a transfer of the DB component of their superannuation entitlements into Division 5 (the accumulation Division) of the Scheme, plus an uplift of 4.99% of their DB entitlements; and • the X employee in Division 3 will be offered a transfer into Division 5 of the greater of: 1. The value of the DB pension plus an uplift of 4.99% of the value of the DB pension; and 2. The retrenchment benefit at the date of transfer to Division 3. The proposed uplift in benefits outlined above will be funded by a transfer from the reserves of the Scheme sourced from the surplus in the relevant Entity A Sub-Fund.

Relevant legislative provisions: Income Tax Assessment (1997 Act) Regulations 2021 Subsection 292-90.01(2) | Income Tax Assessment (1997 Act) Regulations 2021 Subsection 292-90.01 (2A) | Income Tax Assessment (1997 Act) Regulations 2021 Subsection 292-90.02 | Treasury Laws Amendment (Legacy Retirement Product Commutations and Reserves) Regulations 2024

Reasons for decision: Detailed Reasoning - Detailed reasoning: Section 292-90.01 of the Income Tax Assessment (1997 Act) Regulations 2021 (the Regulations) specifies the conditions for allocation of an amount in a complying superannuation plan. Note - If the amount meets the conditions of this section it will be an amount covered by subsection 292-90(4) of the Act. Such amounts are counted in determining your non-concessional contribution for a financial year. Section 292-90.01(2A) regarding conditions for allocation from reserves states If: (a) the amount is allocated from a reserve; and (b) the amount is not allocated in accordance with the conditions specified in subsection (2); the conditions are that; (c) section 292-90.02 does not apply in relation to the allocation; and (d) the amount is not covered by subsection (3) of this section; and (e) the amount is not allocated in accordance with the conditions specified in subsection 291- 25.01(2); and (f) the amount is not an amount mentioned in subs (g) section 99G(6) of the Superannuation Industry (Supervision) Act 1993 that is refunded in accordance with that subsection. Section 292-90.02 of the Act describes allocations from reserves that aren't included in your non-concessional contributions: Subsection 292-90.02(1) states: For the purpose of paragraph 292-90.01(2A)(c), this section applies in relation to the allocation of an amount in a complying superannuation plan for you for a financial year form a reserve if any of subsections (2) to (6) of this section applies. Note: The result of this section applying in relation to an allocation is that the allocation does not satisfy the condition in subsection 292-90.01(2A) for inclusion in your non-concessional contributions for a financial year. Subsection 292-90.02(2) applies if: (a) the allocation of the amount for you is part of the allocation, in a fair and reasonable manner, of amounts to accounts for: (i) every member of the complying superannuation plan; or (ii) if you are member of a class of members of the complying superannuation plan, and the reserve relates only to that class of members - every member of the class; and (b) the total amount that is allocated for you for the financial year as part of allocations to which paragraph (a) applies is less than 5% of the value of your interest in the complying superannuation plan at the time of allocation; and (c) the amount would not be assessable income of the complying superannuation plan if it were made as a contribution. Subsection 292-90.02(3) applies if: (a) the reserve is a pension reserve of the complying superannuation plan; and (b) the amount is allocated from the reserve for you to satisfy a pension liability; and (c) that liability is paid during the financial year. Subsection 292-90.02(4) applies if: (a) the reserve is a pension reserve of the complying superannuation plan; and (b) the reserve is used to discharged all or part of a liability of the plan to pay a superannuation income stream benefit from a superannuation income stream of which you are the recipient; and (c) the superannuation income stream is commuted or ceases; and (d) the commutation or cessation is not a result of the death of a primary beneficiary; and (e) the amount is allocated from the reserve for you as a result of you having been (before commutation or cessation) the recipient of the superannuation income stream; and (f) if the reserve relates to more than one superannuation income stream - the allocation is fair and reasonable having regard to: (i) for each superannuation income stream that has not been commuted or ceased - the value of the interest that supports the superannuation income stream; and (ii) for each superannuation income stream that has been commuted or ceased - the value of the interest, that supported the superannuation income stream immediately before the superannuation income stream was commuted or ceased. Subsection 292-90.02(5) applies if: (a) the reserve is a pension reserve of the complying superannuation plan; and (b) the amount is allocated from the reserve for you as a result of the commutation of a superannuation income stream; and (c) the commutation is a result of the death of the primary beneficiary; and (d) you are a death benefits dependant of the primary beneficiary; and (e) the amount is allocated from the reserve for you: (i) to discharge liabilities of the plan in respect of a superannuation income stream that is payable by the plan as a result of the death of the primary beneficiary; and (ii) as soon as practicable on or after the commutation. Subsection 292-90.02(6) applies if: (a) the reserve is a pension reserve of the complying superannuation plan; and (b) the amount is allocated from the reserve for you as a result of the commutation of a superannuation income stream; and (c) the commutation is a result of the death of a primary beneficiary; and (d) as soon as practicable on or after the commutation, the amount is: (i) allocated for you; and (ii) paid as a superannuation lump sum and a superannuation death benefit. Subsection 292-90.02(7) provides the meaning of pension reserve : A reserve is a pension reserve of a complying superannuation plan at a particular time if the reserves is used at that time solely for the purpose (the pension liability purpose) of enabling the plan to discharge all or part its pension liabilities (contingent or not) as soon as they become due. To avoid doubt for the purposes of subsection (7), subsection 292-90.02(8) states, if: (a) a reserve of a complying superannuation plan is used for the purpose of enabling the plan to discharge all or part of a liability of the plan to pay a superannuation income stream benefit from a superannuation income stream; and (b) the superannuation income stream is commuted or otherwise ceases; and (c) an amount is allocated from the reserve for a person as a result of the person having been (before the commutation or cessation) the recipient of the superannuation income stream; and (d) immediately before the commutation or cessation, the reserve was a pension reserve; the allocation is taken to be a use of the reserve for the pension liability purpose. | Detailed Reasoning - Application of Subsection 292-90.02(2): Entity A Sub-fund has excess assets and is in surplus, which is included within the reserves of the Scheme. The Scheme Rules for the Employer Division Sub-fund splits and earmarks the amount of the reserves attributable to Entity A Sub-fund. Pursuant to Scheme Rules, r 6B(5), an employer may with the consent of the Superannuation Board and on advice from the Actuary, direct all or part of any surplus/reserves held in any division or sub-division of the Scheme assets (referable to that employer) to be transferred to another division or sub-division of the Scheme nominated by the employer. Therefore, the Scheme Rules, empower Entity A to transfer the excess assets within any Entity A Sub-Fund to any other Division or Sub-Fund. Accordingly, a transfer of reserves is permitted. A fair and reasonable manner The method of calculation the allocation of the reserve will be fair and reasonable and actuarially determined. It makes no arbitrary distinction between any member of Division 2 and Division 3 with Entity A Sub-fund. Every member of a class of members 'Class' is defined in section 995-1 of the Income Tax Assessment Act 1997 (ITAA 1997): 'Class' - membership interests in a company or trust form a class if the interests have the same, or substantially the same, rights. To identify each class of members within the Scheme, each Division within each Sub-fund comprises the members of each Employer within a Division. Therefore, the allocation of Entity A Sub-fund reserve attributable to Division 2 and Division 3 of the Scheme to all employees' of Entity A in Division 2 and Division 3 where an allocation from a reserve is in respect of superannuation lump sum benefits (Division 2) and Pension benefits (Division 3) that meets the definition of 'every member of a class of members. Less than 5% of value of interest The amount to be paid from the reserves will be calculated by the actuary immediately prior to the distribution being made and will not exceed 5% of the DB benefits (sub section 292-90.02(2)(b)) (excluding any balance in a member' voluntary contribution account) of Division 2 and Division 3 members. | Detailed Reasoning - Conclusion: Subsection 292-90.02 (2) applies for Division 2 and Division 3 members for allocations to be exempt from counting towards a member's non-concessional contributions if: • the amount of reserve relates only to the Division 2 and Division3 class of active members; and • the amount will be allocated in a fair and reasonable manner to an account of every active member of the Division 2 and Division 3 class; and • the amount will be less than 5% of the value of each such active member's interest in the Scheme at the time of allocation; and • the amount would not be assessable income of the Scheme if it were made as a contribution. If all the conditions are met, Subsection 292-90.02(2) will apply to Division 2 and Division 3 members.