Private ruling: Concessional contributions
Date of advice: 16 October 2018
Published: December 2018
Ruling period: Income year ending 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q1: Does the Commissioner of Taxation (the Commissioner) have a discretion under subregulation 291-25.01(4) of the Income Tax Assessment Regulations 1997 (ITAR 1997) to not treat an allocation from a reserve as a concessional contribution where that allocation does not meet the requirements of subregulation 291-25.01(4) of the ITAR 1997? | A1: No.

Relevant facts and circumstances: A superannuation fund (the Fund) is a complying self-managed superannuation fund. In 20XX, the trustees of the Fund (the Trustees) commenced to pay a 13-year complying pension to a member of the Fund (Member 1). In 20XX, the Trustees also commenced to pay a 13-year complying pension to another member of the Fund (Member 2). In the 20XX-XX income year, the pensions in respect of Member 1 and Member 2 ceased. In the 20XX-XX income year, an investment reserve (the Reserve) was created when the complying pensions paid to Member 1 and Member 2 ceased. The Trustees wish to allocate all of the balance in the Reserve equally to Member 1 and Member 2, and ask the Commissioner not to treat those allocations as concessional contributions.

Relevant legislative provisions: Income Tax Assessment Act 1997 Subsection 291-25(1) | Income Tax Assessment Act 1997 Subsection 291-25(2) | Income Tax Assessment Act 1997 Subsection 291-25(3) | Income Tax Assessment Regulations 1997 Subregulation 291-25.01(4) | Income Tax Assessment Regulations 1997 Paragraph 291-25.01(4)(a) | Income Tax Assessment Regulations 1997 Paragraph 291-25.01(4)(b)

Reasons for decision: Summary: There is no discretion under subregulation 291-25.01(4) of the ITAR 1997 which allows the Commissioner to not treat an allocation from a reserve as a concessional contribution where that allocation does not meet the requirements of subregulation 291-25.01(4) of the ITAR 1997. | Detailed Reasoning - Detailed reasoning: Subsection 291-25(1) of the Income Tax Assessment Act 1997 (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) and each amount covered under subsection 291-25(3). Subsection 291-25(3) of the ITAA 1997 provides that concessional contributions for a financial year include certain amounts allocated for the individual in accordance with conditions specified in the regulations. Subregulation 291-25.01(4) of the ITAR 1997 provides that an amount allocated from a reserve is treated as being allocated in a way covered by subsection 291-25(3) of the ITAA 1997 unless certain exclusions apply. Paragraph 291-25.01(4)(a) of the ITAR 1997 provides an exception with respect to an allocation made from a reserve where the following conditions are met: ● the amount is allocated in a fair and reasonable manner to an account for every member of the fund, and ● the amount that is allocated for the financial year is less than 5% of the value of the member’s interest in the fund at the time of allocation. In this case, without considering whether the proposed allocation may be made in a fair and reasonable manner to all members of the fund, the proposed allocation of the remaining balance of the Reserve equally between Member 1 and Member 2 would exceed 5% of the value of the Member’s interest in the Fund at the time of allocation. Accordingly, paragraph 291-25.01(4)(a) of the ITAR 1997 would not apply to except the allocation from being a concessional contribution. Paragraph 291-25.01(4)(b) of the ITAR 1997 also provides an exception with respect to an allocation made from a reserve where: (i) the amount is allocated from a reserve used solely for the purpose of enabling the fund to discharge all or part of its liabilities (contingent or not), as soon as they become due, in respect of superannuation income stream benefits that are payable by the fund at that time; and … In your case, the Reserve was created following the cessation of the pensions, therefore it is not a reserve maintained solely for the purpose of enabling the Trustees to discharge their liabilities in respect of pensions that are payable by the Fund. As the reserve from which the proposed allocation to Member 2 is to be made is not a reserve which meets the requirements of paragraph 291-25.01(4)(b) of the ITAR 1997, the exception in that provision to the allocation being a concessional contribution does not apply. There is no discretion available to the Commissioner to not treat an allocation from a reserve as a concessional contribution where that allocation does not meet the requirements of subregulation 291-25.01(4) of the ITAR 1997.