Private ruling: Non-concessional contributions arising from structured settlements
Date of advice: 11 May 2020
Published: June 2020

Ruling: Q1: Is the amount proposed to be contributed to a complying superannuation fund for the benefit of the taxpayer covered under section 292-95 of the Income Tax Assessment Act 1997 (ITAA 1997) as a payment arising from a structured settlement for personal injury? | A1: Yes | Q2: Will the amount proposed to be contributed to a complying superannuation fund be excluded from being a non-concessional contribution for the 20XX-XX income year under subparagraph 292-90(2)(c)(ii) of the ITAA 1997? | A2: Yes

Relevant facts and circumstances: Several years ago, Your Client sustained a workplace injury as a result of which they became a quadriplegic. Consequently, Your Client commenced a claim for damages for personal injuries. Subsequently, an out-of-court settlement was reached between the parties to the claim. The terms of the settlement were set out in a written settlement agreement (Settlement Agreement). As per the terms of the Settlement Agreement, Your Client was paid a specified settlement sum. The compensation or damages is in respect of personal injury suffered by Your Client and is not in respect of compensation for loss or damage to property. Your Client will contribute the settlement funds to a complying superannuation fund in accordance with the requirements of paragraph 292-95(1)(b) of the ITAA 1997. Your Client has obtained two separate certificates from legally qualified medical practitioners that have certified that, because of the personal injury suffered by Your Client, it is unlikely that they can ever be gainfully employed in a capacity for which they are reasonably qualified because of education, experience or training. When making the contribution, Your Client or their legal personal representative, will provide a notice in the approved form to the trustee of the fund declaring that section 292-95 of the ITAA 1997 applies to the contribution.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 292-80 | Income Tax Assessment Act 1997 Section 292-90 | Income Tax Assessment Act 1997 Subsection292-90(2) | Income Tax Assessment Act 1997 Subparagraph292-90(2)(c)(ii) | Income Tax Assessment Act 1997 Section 292-95 | Income Tax Assessment Act 1997 Subsection 292-95(1) | Income Tax Assessment Act 1997 Subsection 292-95(3) All references are to the ITAA 1997 unless otherwise indicated.

Reasons for decision: Summary: The proposed contribution to a complying superannuation fund for the benefit of Your Client satisfies the conditions in subsection 292-95(1). As such, the contribution will be covered under section 292-95 as a payment arising from a structured settlement for personal injury. Therefore, in accordance with subparagraph 292-90(2)(c)(ii) the proposed 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, non-concessional contributions for a financial year made to a complying superannuation fund are subject to 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. However, under subsection 292-90(2), 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 that arise from structured settlements or orders for personal injuries are not non-concessional contributions under subparagraph 292-90(2)(c)(ii). The combined effect of subsections 292-90(2) and 292-95(1) 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. According to subsection 292-95(1): (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, or such longer period as the Commissioner allows, 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. According to subsection 292-95(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 (ii) 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). Based on the facts of this case, the contribution arises from the settlement of a claim which satisfies all of the conditions in subsection 292-95(3). Therefore, paragraph 292-95(1)(a) has been satisfied. As Your Client will contribute the settlement funds to a complying superannuation fund in accordance with the requirements of paragraph 292-95(1)(b), the condition under paragraph 292-95(1)(b) will be satisfied. Your Client has obtained two separate certificates from legally qualified medical practitioners that have certified that, because of the personal injury suffered by Your Client, it is unlikely that they can ever be gainfully employed in a capacity for which they are reasonably qualified because of education, experience or training, thereby satisfying paragraph 292-95(1)(c). When making the contribution, Your Client or their legal personal representative, will provide a notice in the approved form to the trustee of the fund declaring that section 292-95 of the ITAA 1997 applies to the contribution. Accordingly, paragraph 292-95(1)(d) will be satisfied. Therefore, as the conditions in subsection 292-95(1) will be satisfied, the proposed contribution will not be a non-concessional contribution for the purposes of section 292-90 in the 20XX-XX income year. As such, the proposed contribution will not count towards Your Client's non-concessional contributions cap for the 20XX-XX income year.

This advice applies for the following period: Income year ending 30 June 20XX