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Concessional contributions

Constitutionally protected funds

Section: 4.7

4.7 Constitutionally protected funds

Constitutionally protected funds (CPFs) are untaxed superannuation funds that do not pay income tax on contributions or earnings.

Some state governments operate CPFs funds for their employees. Funds created for members of the judiciary are also often CPFs. Under the Australian constitution, state government assets cannot be taxed by the Commonwealth, so different arrangements apply to concessional contributions to CPFs.

Concessional contributions to CPFs

Before 1 July 2017, concessional contributions made to a constitutionally protected taxed fund did not count towards an individual's concessional contributions cap.

From 1 July 2017, concessional contributions made (and certain other amounts allocated for interests) in CPFs, and unfunded defined benefit funds will count towards a member's concessional contributions cap which is $25,000 in 2020/21, increasing to $27,500 from 1 July 2021. These contributions and amounts on their own cannot result in a member exceeding their concessional contributions cap for a financial year; however, they will be used to assess a member's liability for Division 293 tax.

As CPF contributions are counted towards the concessional contributions cap, care must be taken if a member makes concessional contributions to another superannuation fund. If a member contributes $25,000 to a CPF, any concessional contributions to another superannuation fund will trigger an excess concessional contributions tax.

Example:
Concessional Contributions 
Joseph is 40 years old and an employee of a state government that operates a constitutionally protected fund (CPF). During the 2020/21 financial year, Joseph's employer contributes $30,000 to the CPF for Joseph.

Joseph also has another superannuation fund which is not a CPF and he salary sacrifices $7,500 to this other fund.

The concessional contributions cap for the 2020/21 financial year is $25,000.

The $30,000 of concessional contributions made to the CPF count towards Joseph's concessional contributions cap, however, this alone does not trigger an excess concessional contributions tax. However, Joseph also made concessional contributions to another superannuation fund which is not a CFP, bringing his total concessional contributions for the financial year to $37,500. Joseph has exceeded the concessional contributions cap and will have to pay excess concessional contributions tax on the $7,500.

Division 293 tax
Joseph's income is $280,000, making it higher than the Division 293 threshold of $250,000. As a result, the concessional contributions that were not previously treated as excess ($30,000 contributed to the CFP) will now be used to assess his liability for Division 293 tax.Joseph will be issued with a Division 293 tax liability of $4,500 (15% of the $30,000 CPF contributions) which he will need to pay out his superannuation account or from his personal funds.

This technical resource is intended for the use of financial advisers only. It is current as at the date of publication but may be subject to change. This publication has been prepared without taking into account a potential investor's objectives, financial situation, needs or objectives. Before making a recommendation based on this material, you should consider its appropriateness based on the client's objectives, financial situation and needs. Rainmaker Group is not a registered tax agent under the Tax Agent Services Act 2009. Your client should refer to a registered tax agent before relying on information published herein that may impact their tax obligations, liabilities or entitlements.

Last modified: Wednesday, May 5, 2021