If you’ve ever been seriously injured, or in the very unfortunate event that you are, you may be interested to know there’s a special exemption that allows you to put any personal injury payments into your superannuation without the risk of breaking your contributions cap.
Personal injury payments are generally excluded from the non-concessional (after tax) contributions cap of $150,000. There is no limit to the amount that can be contributed under this exclusion, however in order for it to apply, there are certain conditions that must be met.
Personal injury payment requirements
The payment type must be paid as a result of one of the following categories:
- The payment is for the settlement of a claim for compensation or damages for, or in respect of, personal injury suffered by the member, and the claim is based on the commission of a wrong, or on a right created by a statute. Further, the settlement must be a written agreement between the parties whether or not the agreement is approved or endorsed by a court.
- The payment is for the settlement of a claim for, or in respect of, personal injury suffered by the member under Commonwealth or State law in relation to workers compensation.
- The payment is made following a court order for compensation or damages for personal injury suffered by the client and the claim is based on the commission of a wrong, or on a right created by a statute. The order can’t be one approving or endorsing an agreement as in the first point above.
If the payment is a combination of compensation for personal injury as well as compensation for something else – such as medical expenses or property damage – only the amount relating to personal injury will be exempt from the super contributions caps. This is illustrated in the following example.
Example
As a result of a car accident, Bruce is awarded $1.25 million from insurers of which $1 million is for personal injury. The remaining $250,000 is compensation for medical costs. He contributes the full $1.25 million to his self managed super fund within 90 days of receiving the payment. Only the $1 million can be contributed as a personal injury payment and excluded from the cap. The remaining $250,000 will be counted towards the $150,000 non-concessional cap.
Contribution requirements
Two legally qualified medical practitioners must have certified that the member is not expected to ever work again in a role in line with their education, training or experience.
The member must make the contribution within 90 days from whichever of the following events occurs last:
- the day the member received the personal injury payment;
- the day an agreement for settlement of personal injury payment was entered into; or
- the day on which a court order for the personal injury payment was made.
The receipt of the payment is dated from when the person ‘receives’ the payment, whether it is paid directly to them or to their legal personal representative. This point is important, as you can see from this example:
In 2002, a child taxpayer was awarded damages pursuant to a court order and these were paid to the Public Trustee. When the taxpayer turned 18, they received the money that was held in trust and proposed to contribute it to their super fund within 90 days of receipt of the trust funds. The ATO determined that the 90-day period started when the payment was made to the Public Trustee and not when the taxpayer took over their finances. So the amount couldn’t be contributed to super under the personal injury exclusion and would be counted in the non-concessional cap.
Advising the super fund
Members must advise their fund that they are claiming the exclusion either before or at the time of the contribution. If they don’t, the fund is required to report these amounts as personal contributions, which count towards the non-concessional contributions cap. The ATO provides a form for this purpose called the ‘Contributions for personal injury form’, however it is not mandatory to use this as long the fund is provided with all the required information.
Age restrictions
The same age contribution restrictions that apply to normal contributions also apply to personal injury payments. Members below age 65 can contribute the personal injury payments without limitations. Members aged 65 but less than 75 will need to meet the work test, being gainfully employed for at least 40 hours in a period of not more than 30 consecutive days in the financial year. No contributions can be accepted if the individual is aged 75 and above.
Don’t forget the caps
If the contribution doesn’t meet the exact requirements of a personal injury payment, or is contributed after the 90-day period, it won’t be classified as a personal injury payment and therefore can’t be excluded from the cap.
The payment will then be a non-concessional contribution. The amount of the payment may be substantial, so watch out that it does not breach $150,000, or inadvertently trigger the bring forward rule for members under 65. This will require careful management of any contributions going forward.
Important information: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. Anyone should consider the appropriateness of the information in regards to their circumstances.
