Constitutionally protected funds
Constitutionally protected funds (CPFs) are untaxed super funds which don't pay income tax on contributions or earnings they receive. For instance an untaxed fund, such as a fund operated by a state government for their employees, where currently exempt from the concessional contribution cap.
This allowed members of these funds to receive or accrue any amount of employer contributions, other contributions and amounts without it affecting their ability to have concessional contributions made to other superannuation funds.
From 1 July 2017, contributions made (and certain other amounts allocated for interests) in CPFs and unfunded defined benefit funds will count towards their concessional contributions cap ($25,000 in 2020/21).
These contributions and amounts on their own cannot result in their exceeding their concessional contributions cap for a financial year, however, they will be used to assess a member's liability for Division 293 tax.
Counting towards a member's concessional contributions cap means that their ability to make further concessional contribution is limited.
David is 38 years old and an employee of the state government. His total income for the financial year is $280,000. David has a defined benefit contributions of $30,000 in the 2017-18 financial year to a CPF and also salary sacrifices $7,500 to another super fund which is NOT a CPF.
David's concessional contributions cap amount for 2017-18 financial year is $25,000.
The $30,000 concessional contribution to the CPF count towards David's concessional contributions cap. Therefore, his concessional contributions for the financial year sits at $38,000. David exceeds his concessional cap for the 2017/18 financial year which is $25,000.
The $30,000 concessional contribution to the CPF count towards David's concessional contributions cap. Therefore, his concessional contributions for the financial year ia $37,500.
This is more than his cap amount for the 2017/18 financial year and David's has to pay excess non-concessional contributions tax on $7,500.
David's income is $280,000, making it higher than the Division 293 threshold. As a result, the concessional contributions that were not previously treated for excess ($30,000) will now be used to assess his liability for Division 293 tax.
David 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 super account or by his own money.
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: Tuesday, September 15, 2020