Assessability of superannuation contributions made in favour of local government councillors

Will amounts paid by a local government council in the form of contributions to a complying superannuation fund that are assessable to the fund under section 295-160 of the Income Tax Assessment Act 1997 (ITAA 1997), represent assessable income of the councillor for the purposes of the ITAA 1997?

No. Amounts paid by a local government council in the form of contributions to a complying superannuation fund that are assessable to the fund under section 295-160 of the ITAA 1997, do not represent assessable income of the councillor for the purposes of the ITAA 1997.

The local government council has entered into an arrangement with its councillors under which the councillors have agreed to forego part of their remuneration in exchange for the local government council making contributions to a complying superannuation fund. The effect of the arrangement is that the amounts paid by the council to the complying superannuation fund are assessable to the fund as 'superannuation benefits for someone else' as set out in section 295-160 of the ITAA 1997.

The local government councillor is not carrying on a business in respect of their duties as a councillor.

Income from the remuneration arrangement between the local government council and the councillor would normally be assessable under section 6-5 of the ITAA 1997 when it is received by the councillor. It may be taken to have been received under subsection 6-5(4) of the ITAA 1997 where it is otherwise dealt with on behalf of the councillor. However, contributions made to a complying superannuation fund on behalf of the councillor as part of an agreement between the local government council and the councillor will not fall within the ambit of subsection 6-5(4) of the ITAA 1997 because it is accepted that the councillor has agreed to forego part of the remuneration before earning the entitlement to receive that amount as ordinary income.

Once it is established that subsection 6-5(4) of the ITAA 1997 does not apply to the arrangement it becomes necessary to consider the application of section 15-2 of the ITAA 1997.

In Constable v. Federal Commissioner of Taxation (1952) 86 CLR 402; (1952) 10 ATD 93; (1952) 5 AITR 371 ( Constable ) the obiter comments of the majority of the High Court of Australia were to the effect that the sums contributed by the employer to the fund were not allowed, given or granted to an employee and were therefore not assessable under paragraph 26(e) of the Income Tax Assessment Act 1936 (ITAA 1936), but instead were paid to the administrators of the fund. While the members did not have a vested and indefeasible right to the employer contributions in that case, the court's comments support the view that section 15-2 of the ITAA 1997 (the rewritten version of paragraph 26(e) of the ITAA 1936) does not apply to the making of contributions to a superannuation fund by an employer for the employees' benefit.

Since the decision in Constable , the scheme of superannuation and taxation law has been prefaced on the view that a contribution by an employer to a superannuation fund is not the income of the employee. Much of the superannuation guarantee law and income tax law concerning the taxation of superannuation funds would be redundant if employer contributions were assessable income of employees when the contributions were made.

It is acknowledged that local government councillors are not employees. However, similarly to the position with employees the contributions made by the local government council represent assessable income of the superannuation fund as a contribution to provide benefits for someone else as set out under section 295-160 of the ITAA 1997. In light of this and the foregoing consideration of the decision in Constable , coupled with the subsequent development of the scheme of taxation of complying superannuation funds, it is considered that the same reasoning as applied to employees in respect to the application of section 15-2 of the ITAA 1997 would apply with equal force to local government councillors in the circumstances set out above. Note: sections 290-10 and 290-60 of the ITAA 1997 work together to ensure that no deduction is available for a contribution to a superannuation fund for the benefit of another person who is not an employee under section 12 of the Superannuation Guarantee (Administration) Act 1992 .