Australian Taxation Office
Controlling interest superannuation scheme
A controlling interest superannuation scheme has the following characteristics:
- A taxpayer is a director or employee at common law engaged in producing assessable income of a company in which they have a greater that 50% voting interest. As a result the individual is regarded as both an eligible employee and a taxpayer who has a controlling interest in that company. The taxpayer may take out a loan to finance a superannuation contribution.
- The taxpayer makes the contribution for themselves to a complying or non-complying superannuation fund.
- The taxpayer's contribution may be reimbursed by the employer company.
- Often the complying or non-complying fund invests the contribution in an entity associated with the controlled entity or in term deposits with the company that lent the funds to the taxpayer to make the contribution.
The flow of funds
The tax mischief
No tax obligations are purported to arise from the scheme, so a tax mischief stems from a legislative weakness in section 82AAA.
The taxpayer's legal perspective:
- The taxpayer claims deductions under sections 82AAC or 82AAE for the contributions made to the fund (unless they are reimbursed by the employer) as they are an eligible employee.
- They claim deductions under subsection 51(1) of the Income Tax Assessment Act 1936, or section 8-1 of the Income Tax Assessment Act 1997 for any interest expense incurred on any loan to finance the contribution.
- They claim that the contribution does not constitute a fringe benefit for the purposes of the Fringe Benefits Tax Assessment Act 1986 (Cth) where it is made to a complying superannuation fund or non-complying superannuation fund. Where the contribution is reimbursed by the employer any such fringe benefit has no (or minimal) fringe benefits taxable value.
- It is asserted that the contribution to the superannuation fund is not a taxable contribution as defined in section 274 of the Income Tax Assessment Act 1936 (Cth). This is because the contribution is not made for the purpose of making provision for superannuation benefits for another person. The contribution is made for the purpose of making superannuation benefits for the individuals themselves.
- It is asserted that the contribution does not constitute a surchargeable contribution under section 8 of the Superannuation Contributions Tax (Assessment and Collection) Act 1997.
Our legal perspective:
The Commissioner's view is that, depending on the facts, one or
more of the following applies:
- deductions under sections 82AAC or 82AAE for a contribution are not allowable, either because the contributions were not made for the purpose of providing superannuation benefits or because the controlling individual is not an eligible employee deductions under subsection 51(1) of the Income Tax Assessment Act 1936 (Cth) or section 8-1 of the Income Tax Assessment Act 1997 (Cth) for the interest expense (if any) incurred by the taxpayer in relation to a loan to finance a contribution are not allowable.
What you can do
The legislation was amended in 2000 so that there could be no doubt that controlling interest superannuation schemes are no longer effective. On 14 March 2003 we announced changes to our position on certain Employee Benefit Arrangements including some types of controlling interest superannuation schemes. For more information please refer to our Media Release.
For more information contact the Tax Office on 1800 001 111.
Last Modified: Thursday, 13 November 2003