Specialist legal services should be sought before practitioners advise trustees to use a personal injury settlement as a superannuation contribution to ensure the payment meets key legislative criteria, according to a technical expert.
BT Financial Group technical consultant Tim Howard confirmed a payment stemming from a personal injury compensation claim can be used as a contribution without impacting a superannuant’s non-concessional cap, but the payment had to meet one of three definitions outlined in section 292.95 of the Income Tax Assessment Act.
The first two of these relate to compensation for personal injury due to wrongful actions or statutory rights, and workers’ compensation claims under state or federal law.
Howard pointed out the last of the definitions, which covers payments arising from a court order, can be problematic for some advisers.
“[The third definition] is a little bit confusing. Often you might have a client who has received a payment and it may be difficult to understand or identify in your capacity as an adviser whether it meets this definition,” he noted during a webinar held by his firm today.
“More often than not, a client has received legal advice in relation to a receipt of that payment, in addition to negotiations, pursuits and applications to the court to receive that payment.
“The legal adviser or solicitor will be able to identify and provide advice that it meets these requirements, which would allow the financial adviser to make a recommendation to make a contribution of such payment into superannuation.”
Additionally, for the contribution to be valid, the opinion of medical experts must also be sought prior to making the contribution.
“Part of the eligibility criteria talks to the requirement for two legally qualified medical practitioners to have certified that the member is unlikely to ever be gainfully employed in the capacity for which they are reasonably qualified because of education, experience or training,” Howard stated.
He further reminded practitioners if a payment meets the eligibility requirements for a contribution, a personal injury election form must be submitted within 90 days of receiving the payment or the date of the court order, whichever is later.
