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Tax-free employer super contributions?

Click here to buy - A How To Book of SMSF's by Tony Negline

Tony Negline

No doubt most of you are aware that the income tax laws say that contributions made to a super fund made by a person or entity (for example, an employer) for the benefit of another person (for example, an employee) are subject to tax in the year those contributions are made. There are some other contributions which are also taxed but we will ignore these for the moment.

The tax law contains some specific exemptions:

a. the contributions that one spouse make for their spouse which cannot be claimed as a tax deduction by the contributor

b. Government co-contributions

c. Contributions made for a minor unless those contributions are made by a minor's employer

d. Contributions made by an entity that when it was made it was the trustee of a complying super fund.

e. Contributions for temporary residents.

For the time being what interests me is the second last rule. It's a rather unusual provision and requires some further examination.

Assume a person runs a small business through a company which doubles as the trustee of their self managed fund. Does this rule mean their employer contributions aren't taxed? This is a very good question.

This provision was inserted into the law in 1997 and was originally inserted into the Income Tax Assessment Act 1936. The reasoning for its insertion into the law was never been fully explained when it was put into the law.

When the Costello Better Super rules were introduced into Parliament this rule was missing. It was put back into the law at the behest of a fund manager and ASFA supported their request. The government obviously agreed and inserted the rule into the law.

Corporations can act in different capacities. The employer contributions it makes are made in the capacity as an employer. The decision it makes as a super fund trustee are made in that capacity.

The ATO told me that they believe the provision would probably have very little application. I couldn't find any Private Binding Rulings that had been issued in relation to the old provision detailing how someone has used it. It would be interesting to hear of anyone who has used the provision.

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