Excess contributions tax: transitional non-concessional contributions - age based deduction limit - associated employers

When calculating a person's non-concessional contributions for the period 10 May 2006 to 30 June 2007, does subparagraph 292-80(3)(b)(ii) of the Income Tax (Transitional Provisions) Act 1997 (IT(TP)A 1997) include the contributions made by an employer and associates of the employer to the extent to which they exceed the person's age-based deduction limit for that employer and their associates?

Yes. A person's non-concessional contributions calculated under subparagraph 292-80(3)(b)(ii) of the IT(TP)A 1997 includes the contributions made by an employer and associates of the employer to the extent to which the sum of those contributions exceeds the person's age-based deduction limit for that employer and the associates. Contributions by employers who are not associates are considered separately against the person's age-based deduction limit for that employer.

An individual, aged 54, had three employers during the period 1 July 2006 to 30 June 2007.

Each employer contributed $105,000 to a complying superannuation fund on behalf of the individual.

Two of the employers are associates as defined in section 318 of the Income Tax Assessment Act 1936 (ITAA 1936).

Excess contributions tax may be payable on superannuation contributions made in the period between 10 May 2006 and 30 June 2007 (the transitional period). Section 292-80 of the IT(TP)A 1997 applied (with modifications) the provisions of the Income Tax Assessment Act 1997 dealing with excess non-concessional contributions tax to contributions made in the transitional period. The relevant modifications are contained in section 292-80 of the IT(TP)A 1997.

Subparagraph 292-80(3)(b)(ii) of the IT(TP)A 1997 provides that the amount of a person's non-concessional contributions made during the transitional period included the amount mentioned under subsection 292-80(6) of the IT(TP)A 1997. Subsection 292-80(6) applies where the conditions in subsection 292-80(5) of the IT(TP)A 1997 are met.

The conditions in subsection 292-80(5) of the IT(TP)A 1997 are that contributions have been made for a person (the 'first person') between 10 May 2006 and 30 June 2007 and 'those contributions are allowable as a deduction for another person under subsection 82AAC(1) of the Income Tax Assessment Act 1936 (apart from subsection 82AAC(2) of that Act)'. That is, subsections 290-80(5) and (6) of the IT(TP)A 1997 apply where an employer is eligible to deduct contributions made for an employee.

Under subsection 82AAC(1) of the ITAA 1936, an employer could claim a deduction for superannuation contributions made to a complying superannuation fund for the purpose of making provision for superannuation benefits for their employees. Subsection 82AAC(2) of the ITAA 1936 imposed a limit (age-based deduction limit) on the amount of the deduction an employer, together with one or more associates (as defined in section 318 of the ITAA 1936), could claim for superannuation contributions for each employee under subsection 82AAC(1). The amount of the age-based deduction limit was determined under subsection 82AAC(2A) of the ITAA 1936 and was based on the age of the employee at the time the last contribution was made in the income year for the employee by either the employer or their associate. For the year ended 30 June 2007, the age-based deduction limit for an individual 50 years and older was $105,113.

To determine the amount of an individual's non-concessional contributions during the transitional period subsection 292-80(6) of the IT(TP)A 1997 provides: The amount to be included in the first person's amount of non-concessional contributions under subparagraph (3)(b)(ii) is the sum of: (a) the amount of those contributions made in the period mentioned in subparagraph (5)(a)(i), to the extent that they exceed the first person's deduction limit (within the meaning of subsection 82AAC(2A) of the Income Tax Assessment Act 1936) for the income year of the other person in which the contributions were made; and (b) the amount of those contributions made in the period mentioned in subparagraph (5)(a)(ii), to the extent that they exceed the first person's deduction limit (within the meaning of subsection 82AAC(2A) of the Income Tax Assessment Act 1936) for the income year of the other person in which the contributions were made.

The contributions made in each of the periods 10 May 2006 to 30 June 2006 and 1 July 2006 to 30 June 2007 are considered separately against 'the first person's deduction limit (within the meaning of subsection 82AAC(2A) of the Income Tax Assessment Act 1936) for the income year of the other person'. The 'first person', as referred to in paragraph 292-80(5)(a) of the IT(TP)A 1997, is the person for whom the contributions have been made. The reference to 'the other person' in paragraph 292-80(5)(b) of the IT(TP)A 1997 is to the person who made the contributions. The wording of subsection 292-80(6) of the IT(TP)A 1997 indicates that the deduction limit is linked to the employer who made the contributions. Further, under section 82AAC of the ITAA 1936 the age-based deduction limit calculated for an individual applied to the combined contributions of an employer and the employer's associates. Therefore, subsection 292-80(6) of the IT(TP)A 1997 should be read as including in an individual's non-concessional contributions the combined contributions by an employer and their associates to the extent to which the combined contributions exceed the individual's age-based deduction limit that applies for that employer and the employer's associates.

This means that all contributions made by an employer and the employer's associates in excess of the amount the employer and the employer's associates could claim as a deduction will be included in non-concessional contributions for the individual for the transitional period. This interpretation is consistent with the policy intent of the provisions for the transitional period. Paragraph 1.107 of the Explanatory Memorandum to the Tax Laws Amendment (Simplified Superannuation) Bill 2007 states: Excess non-concessional contributions tax and the associated administration arrangements will apply with the following modifications: ...contributions in excess of a person's age-based deduction limit will be counted as a non-concessional contribution (as these contributions are undeducted employer contributions)...

In this case, as two of the employers are associates, only one age-based deduction limit applies for contributions made by both of them during the period 1 July 2006 to 30 June 2007. The individual's age-based deduction limit for the period 1 July 2006 to 30 June 2007 for these associated employers is $105,113 as the individual was 50 years or over when the last contribution was made by one of them during the year. Therefore, of the $210,000 of superannuation contributions made by the two associated employers, $104,887 is undeducted and will be included in the individual's non-concessional contributions for the transitional period.

As the third employer is not an associate of either of the other two employers, another age-based deduction limit will apply to the contributions made by that employer. The individual's age-based deduction limit for the period 1 July 2006 to 30 June 2007 for the third employer is also $105,113 as the individual was 50 years or over when the employer made the last contribution for the individual during the year. As the amount of the third employer's contributions ($105,000) is less than the individual's age-based deduction limit for that employer there are no undeducted contributions and no amount is included in the individual's non-concessional contributions for contributions made by that employer.