Private ruling: Non-concessional contributions
Date of advice: 1 October 2015
Published: October 2015
Ruling period: Income year ending 30 June 2016
Date scheme commenced: 1 July 2015

Ruling: Q1: 1. Is the amount that Your Client plans to contribute to a complying superannuation fund a payment arising from a structured settlement or order for personal injury for the purposes of section 292-95 of the Income Tax Assessment Act 1997 (ITAA 1997)? 2. Will the above amount be excluded from being a non-concessional contribution for the 2015-16 financial year under subparagraph 292-90(2)(c)(ii) of the ITAA 1997? | A1: 1. Yes. 2. Yes.

Relevant facts and circumstances: Several years ago, Your Client sustained a workplace injury as a result of which they become a quadriplegic. Consequently, Your Client commenced legal proceedings against their employer for compensation for loss of income, medical expenses and personal injury. Subsequently, an out-of-court settlement was reached between the parties to the claim. The terms of the settlement are set out in a Supreme Court Consent Judgment (the Consent Judgment) which, as far as relevant state that: • Your Client is to be paid a specified amount (the Settlement Sum). • Pending receipt of the Settlement Sum, Your Client's employer undertakes to pay, to for or on behalf of Your Client, Workers Compensation, including weekly benefits, nursing care, medical treatment, surgical supplies, vehicle hire and rehabilitation services. Your Client plans to contribute a portion of the Settlement Sum to a complying superannuation fund. The contribution to a complying superannuation fund will be made within 90 days of the receipt of the Settlement Sum and an election form will be lodged. When making the contribution, Your Client, will provide a notice in the approved form to the trustee of their superannuation fund declaring that section 292-95 of the ITAA 1997 applies to the contribution. You have provided certificates from two legally qualified medical practitioners stating that, because of the personal injury sustained in the accident, Your Client is unlikely to ever be able to be gainfully employed in a capacity for which they are reasonably qualified because of education, training or experience. Your Client has not returned to work since the accident.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 292-80 | Income Tax Assessment Act 1997 Section 292-90 | Income Tax Assessment Act 1997 Section 292-95 Further issues for you to consider | Not applicable. | Anti-avoidance rules | Not applicable.

Reasons for decision: Summary: For the purposes of section 292-95 of the ITAA 1997, the amount that Your Client intends to contribute to a complying superannuation fund is a contribution that arises from the settlement of a claim in relation to the personal injury suffered by Your Client. Therefore, in accordance with subparagraph 292-90(2)(c)(ii) of the ITAA 1997, the intended contribution is not a non-concessional contribution for the purposes of non-concessional contributions tax. | Detailed Reasoning - Non-concessional contributions: In accordance with section 292-80 of the ITAA 1997, non-concessional contributions for a financial year made to a complying superannuation fund are subject to the non-concessional contributions tax if the amount of non-concessional contributions for the year exceeds the relevant non-concessional contributions cap for the year. Non-concessional contributions are defined in section 292-90 of the ITAA 1997. However, under subsection 292-90(2) of the ITAA 1997, a number of contribution types are specifically excluded from being non-concessional contributions for a financial year. In particular, contributions covered under section 292-95 of the ITAA 1997 that arise from structured settlements or orders for personal injuries. The combined effect of subsections 292-90(2) and 292-95(1) 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 generally means that a person can contribute the proceeds of a personal injury settlement or court order to a superannuation fund without breaching the non-concessional contributions cap. A contribution is covered under subsection 292-95(1) of the ITAA 1997 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. A settlement satisfies the conditions in subsection 292-95(3) of the ITAA 1997 if it is in the form of a written agreement between the parties to the claim and the claim is: • for compensation or damages for, or in respect of, personal injury suffered by a person; • made by the person or their legal personal representative, and • based on the commission of a wrong, or on a right created by statute. In this case, subsection 292-95(3) of the ITAA 1997 applies as the contribution arises from the settlement of a claim made by Your Client for compensation for, or in respect of, personal injury suffered by Your Client; and the settlement was in the form of a written agreement between Your Client and their employer. However, subsection 292-95(5) of the ITAA 1997 states: 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. Therefore, the exemption under section 292-95 of the ITAA 1997 only applies to the extent that a compensation claim giving rise to the contribution relates to personal injury. In this case, the Consent Judgment (in accordance with which the Settlement Sum is to be paid) sets out the amount to be paid to Your Client as one un-dissected sum and does not identify the Settlement Sum as a payment for a specific type of compensation or damages. However, because Your Client had made a claim in respect of personal injury, in the absence of anything contrary in the Consent Judgment, it is impossible to identify that the payment is for anything other than compensation or damages in respect of the personal injury suffered by Your Client. Further, in accordance with the Consent Judgement, Your Client is to be paid Workers Compensation (including weekly benefits, nursing care, medical treatment, etc.) which suggests that the Settlement Sum is an amount paid to Your Client as damages for, or in respect of, personal injury suffered by Your Client. Therefore, the requirements in subsection 292-95(3) of the ITAA 1997 have been satisfied. As such, the proposed contribution will not be a non-concessional contribution for the purposes of section 292-90 of the ITAA 1997.