Deductibility of Contributions to Superannuation Funds

21.30. Contributions by an individual to a superannuation fund for the benefit of himself or his spouse or child are a concessional deduction under section 82H of the Act. Such contributions when aggregated with life insurance premiums and payments to friendly societies are subject to a maximum deduction of $1,200.

21.31. Concessional treatment of personal contributions to superannuation funds can be traced back to the first time income tax was levied by the Australian Government in 1915. From that year until 1935 superannuation contributions were a concessional deduction subject initially to a maximum of $100, but from 1922 a maximum of $200 applied. From 1936 to 1941 superannuation contributions and life insurance premiums were amalgamated with an overall maximum deduction of $200. From 1942 to 1951 concessional rebates of tax were substituted for concessional deductions against income and the maximum amount on which a rebate was allowed remained at $200, raised in 1950 to $300. Concessional deductions were reintroduced in 1951 and the maximum deduction increased to $400. This maximum was increased to $600 in 1957, $800 in 1960 and to the present level of $1,200 in 1968.

21.32. In 1973 section 82H was amended to restrict the availability of the deduction for personal superannuation contributions to cases where the contribution was made to a fund that had been approved by the Commissioner for the purpose of total or partial exemption from tax of the income of the fund. This was done in order to prevent abuses of section 82H whereby funds that were superannuation funds in name only were being set up by individual taxpayers who would make contributions to the fund, claim a deduction and then terminate the fund and withdraw their contributions.

21.33. Deductibility of contributions by employers to superannuation funds for the benefit of their employees is governed by the provisions of sections 82AAA-82AAR of the Act. These sections, some of which are exceedingly complex, were inserted in 1964 and 1965 largely as a result of the Report of the Ligertwood Committee. That Committee detailed abuses which had developed as a result of the then section 66

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(governing deductibility of contributions by employers) and section 79 (governing deductibility of contributions by persons other than employers).

21.34. In summary, the provisions of sections 82AAA-82AAR provide for the deductibility of amounts set aside or paid as or to a fund by an employer for the purpose of making provision for superannuation benefits for an eligible employee or his dependants (section 82AAC). It is to be noted that the deduction is available regardless of whether or not the fund concerned is one that complies with the requirements necessary for partial or total exemption from tax of the fund's income.

21.35. By section 82AAE the amount of the deduction available in respect of each employee is limited in any year to the greater of $400 or 5 per cent of the employee's remuneration in that year. However, this limitation is of little practical significance since the Commissioner is given power to allow the deduction of a greater amount if he considers that there are special circumstances justifying such greater deduction. The Commissioner exercises this power in such a way that, since 1970, the amount which will be allowed as a deduction is the amount (or rate of contribution) which, when aggregated with the contributions, if any, being made by the employee, will produce an end-benefit that is ‘reasonable’ for the purposes of section 23F (2) (h) (see later). These amounts will often be extremely large, particularly where the maximum permissible benefit is being funded over a relatively short period for an executive close to retirement. Deductions in excess of the employee's annual salary are not unusual in these circumstances.

21.36. Self-employed persons are disadvantaged by comparison with employees since they are restricted to claiming a deduction for personal superannuation contributions under section 82H which imposes a limit of $1,200 on deductions for superannuation contributions and life insurance premiums. Employees may receive the benefit both of the section 82H deduction and of contributions made on their behalf to a superannuation fund by their employer. The Ligertwood Committee recommended that self-employed persons be allowed an additional deduction, over and above the section 82H deduction, of $400 per annum for contributions to superannuation funds set up to cater specifically for the self-employed. However, this recommendation has never been implemented.