Classification and allocation of superannuation contributions

Peter Burgess takes a look at steps which need to be taken to ensure contributions are correctly allocated and classified for tax purposes.

When providing superannuation contribution advice, care must be taken to ensure contributions are correctly allocated and classified for tax purposes. Failure to correctly classify and allocate a contribution may lead to clients inadvertently breaching their concessional and/or non-concessional contributions cap and incurring an excess contributions tax penalty.

Taxation Ruling TR 2010/11 identifies and provides examples of transactions which do and do not constitute a contribution for the purposes of the contribution caps. However, the way in which a transaction which constitutes a contribution in TR 2010/11 can or should be allocated to a fund member’s account and classified for tax purposes (ie, concessional or non-concessional) is not addressed in TR 2010/11.

At a National Tax Liaison Group Superannuation Sub-group (NTLG) meeting in September last year, the Australian Taxation Office (ATO) provided further guidance on the way certain amounts, which constitute a superannuation contribution under TR 2010/11, should be allocated to a member’s account and classified for tax purposes.

At this meeting, the ATO advised that the allocation of a particular contribution to a member will depend on the circumstances surrounding the contribution. As stated in paragraph four of TR 2010/11, a contribution is provided by a person whose purpose is to benefit one or more particular members of the fund or all the members in general. Accordingly, the trustees of a superannuation fund must give effect to the contributor’s purpose.

The ATO considers that where the contribution is to benefit one or more particular members, it is expected that the contributor will identify which member/s the contribution is for, and how the amount is to be allocated between them.

However, where the contribution is for all the members in general or all the members of a particular group, the contributions must be apportioned across those members. In making the allocations, consideration should also be given to the fund’s governing rules and the provisions of the Superannuation Industry (Supervision) Regulations 1994.

 In determining how a contribution should be classified for tax purposes, subsection 292-25(2) of the Income Tax Assessment Act 1997 (ITAA 1997), provides that a contribution is a concessional contribution if it is made in the financial year to a complying superannuation fund in respect of a member and is included in the assessable income of the superannuation provider.

Generally, a contribution made by someone other than the member will be included in the assessable income of the fund under section 295-160 of the ITAA 1997, unless the contribution is a spouse contribution or a government co-contribution. Unless it is specifically excluded as a non-concessional contribution under subsection 292-90(2)(c) of the ITAA 1997, contributions which are not included in the assessable income of the fund are non-concessional contributions under section 292-90 of the ITAA 1997.

The following table summarises the ATO’s response to the way a contribution should be allocated and classified for tax purposes in various circumstances. The examples referred to in this table, and the ATO’s response, provide a practical illustration of the way the relevant provisions of the ITAA 1997 should be applied when determining how contributions should be allocated and classified for tax purposes.

Peter Burgess is the national technical director of the Self-managed Superannuation Fund Professionals’ Association of Australia.