Taxation Ruling IT 2274 - Income tax : superannuation - assessable income to include value of certain benefits

What this ruling is about: The Income Tax Assessment Amendment Act (No. 5) 1984 inserted section 26AFA into the Income Tax Assessment Act 1936 (the Act) to subject to tax certain benefits received on or after 7 December 1983 from or in connection with section 23F superannuation funds. The background to, and general operation of, the section is explained at pages 15-19 of the Explanatory Memorandum that accompanied the Income Tax Assessment Bill (No. 5) 1983 (which first proposed the introduction of section 26AFA). This ruling discusses the circumstances in which sub-section 26AFA(2) is to be applied to override the operative sub-section (sub-section (1)) of section 26AFA. 2. The conditions for the application of section 26AFA are set out in sub-section (1). In terms of that sub-section, a benefit is included in the recipient's assessable income where - 3. Sub-section 26AFA(2) provides that sub-section (1) does not apply to the whole or a part of a benefit where - 4. Sub-section 26AFA(2) recognises that there will be cases where the payment of an excessive benefit is made in circumstances in which it would be unreasonable for sub-section (1) to apply to impose a penalty (by subjecting the benefit to tax in the hands of the recipient) additional to that imposed in the form of tax charged on the fund's income.


Ruling: 5. Provided that it is a bona fide situation, with no tax avoidance connotations, sub-section 26AFA(2) should be applied where the excessive benefit arose fortuitously or in other circumstances beyond the effective control of the recipient or the employer. For example, subject to the proviso mentioned, the sub-section should be applied where - 6. Another situation in which sub-section 26AFA(2) may be applied in bona fide circumstances is where excessive benefits are provided from a fund the income of which is taxable under section 121DA or 121DAB - as discussed in paragraph 2 above, a payment from such a fund could fall within the ambit of sub-section 26AFA(1). These funds are commonly used in situations where the superannuation benefits provided for employees are excessive according to the guidelines on permissible benefit levels for section 23F funds and the trustees of the fund decide to no longer seek the exemption afforded by section 23F. In such cases, where there are no tax avoidance connotations and where there has been no interference with the rights to benefits receivable by arm's length employees, sub-section (2) should be applied to override the operation of sub-section (1). 7. While it is expected that sub-section 26AFA(2) would ordinarily be applied in respect of the whole of an excessive benefit, the sub-section does provide for its application to part only of such a benefit. If any case is encountered where, after full consideration, it is concluded that the sub-section should be applied to relieve part only of a benefit from the operation of sub-section 26AFA(1), the case should be forwarded to this Office for consideration together with a recommendation supporting the application of the sub-section to part only of the excessive benefit. 8. Of course, in any case where an excessive benefit is received or obtained pursuant to an arrangement designed to abuse the exemption of the income of a superannuation fund provided by section 23F of the Act or the provisions of the Act under which deductions are allowable for superannuation contributions by employers, sub-section 26AFA(2) is not to be applied. In those circumstances, the whole of the benefit is to be included in the recipient's assessable income. COMMISSIONER OF TAXATION 10 APRIL 1986




Date of effect: Immediate


Legislative references: 23F 26AFA
Subject references: ASSESSABLE INCOME CERTAIN SUPERANNUATION FUND BENEFITS