Private ruling: Deductibility of personal superannuation contributions
Date of advice: 21 December 2016
Published: May 2017
Ruling period: 20YY-ZZ income year
Date scheme commenced: 1 July 20YY

Ruling: Q1: Is Your Client entitled to claim a deduction under section 290-150 of the Income Tax Assessment Act 1997 (ITAA 1997) for personal superannuation contributions in the 20YY-ZZ income year? | A1: Yes provided the deduction does not add to or create a tax loss in that income year.

Relevant facts and circumstances: Your Client was made redundant from their employment in the 20XX-YY income year. The Deed of Release was signed by Your Client in 20YY, the date Your Client was retrenched and ceased work with the Employer. However, the payment was not paid into Your Client's bank account until early 20YY. During the 20YY-ZZ income year Your Client operated as a sole trader which was the main source of their income for the income year. Your Client made a personal superannuation contribution to a complying superannuation fund during the 20YY-ZZ income year. Your Client is under 75 years of age. Your Client intends to provide the trustee of the superannuation fund with a written notice stating Your Client's intention to claim a superannuation deduction for personal superannuation contributions made in the 20YY-ZZ income year. Your Client fully expects that the trustee will acknowledge receipt of Your Client's notice.

Relevant legislative provisions: Income Tax Assessment Act 1997 Subsection 26-55(2). | Income Tax Assessment Act 1997 Section 290-150. | Income Tax Assessment Act 1997 Section 290-155. | Income Tax Assessment Act 1997 Section 290-160. | Income Tax Assessment Act 1997 Subsection 290-160(1). | Income Tax Assessment Act 1997 Subsection 290-160(2). | Income Tax Assessment Act 1997 Section 290-165. | Income Tax Assessment Act 1997 Subsection 290-165(2). | Income Tax Assessment Act 1997 Section 290-170.

Reasons for decision: Summary: Your client is entitled to claim a deduction for a personal superannuation contribution made in the 20YY-ZZ income year, provided the deduction does not add to or create a tax loss in that income year. | Detailed Reasoning - Deductions for personal superannuation contributions: A person must satisfy the conditions in section 290-150 of the Income Tax Assessment Act 1997 (ITAA 1997) before they can claim a deduction in respect of personal contributions made for the purpose of providing superannuation benefits for themselves, or their dependants after their death. Further, subsection 290-150(2) of the ITAA 1997 provides that the conditions in sections 290-155, 290-160 (if applicable), 290-165 and 290-170 must all be satisfied before the person can claim a deduction for the contributions made in that income year. These conditions are explained in detail in Taxation Ruling TR 2010/1 (TR 2010/1) titled 'Income Tax: superannuation contributions' . | Detailed Reasoning - Complying superannuation fund condition: The condition in section 290-155 of the ITAA 1997 requires that where the contribution is made to a superannuation fund, it must be made to a complying superannuation fund for the income year of the fund in which you made the contribution. In this case, Your Client made a personal superannuation contribution to a complying superannuation fund, in the 20YY-ZZ income year. Therefore the complying superannuation fund condition is satisfied. | Detailed Reasoning - Maximum earnings as an employee condition: Section 290-160 of the ITAA 1997 states: (1) This section applies if: (a) in the income year in which you make the contribution, you engage in any of these activities (i) holding an office or appointment; (ii) performing functions or duties; (iii) engaging in work; (iv) doing acts or things; and (b) the activities result in you being treated as an employee for the purposes of the Superannuation Guarantee (Administration) Act 1992 (assuming that subsection 12(11) of that Act had not been enacted). (2) To deduct the contribution, less than 10% of the total of the following must be attributable to the activities: (a) your assessable income for the year; (b) your reportable fringe benefits total for the income year. Where a person is engaged in activities during the income year that would make them an employee for the purposes of the Superannuation Guarantee (Administration) Act 1992 (SGAA) then they will need to satisfy the maximum earnings test in order to claim a deduction for their personal superannuation contributions. It should be noted that the level of superannuation support by an employer or another person is no longer a relevant factor under this condition. The Commissioner has issued Taxation Ruling TR 2010/1 which deals with, among other matters, deductions for personal superannuation contributions. At paragraphs 57 and 58 of TR 2010/1 the Commissioner states: 57. Those persons who are engaged in an 'employment' activity in the income year in which they make a contribution need to meet an earnings test if they are to deduct their contribution. 58. Those persons who have not engaged in an 'employment' activity in the income year in which they make a contribution, such as persons who although receiving workers' compensation payments are not employed at any time during the year, are not subject to the maximum earnings test. From the facts, Your Client was made redundant from their employment during the 20XX-YY income year. A Deed of Release was signed by Your Client during the 20XX-YY income year being the date Your Client was retrenched and ceased work. The document states that the retrenchment payment would be paid within a number of days of ceasing employment. However the payment was not paid into Your Client's bank account until the 20YY-ZZ income year. During the 20YY-ZZ income year Your Client operated as a sole trader which was the main source of their income for the income year. Your Client was not engaged in any employment activity in the 20YY-ZZ income year which would make Your Client an employee for the purposes of the SGAA. The redundancy payment received in the 20YY-ZZ income year was for employment activities in the 20XX-YY income year. Therefore, Your Client is not required to meet the conditions of the maximum earnings test. Hence, section 290-160 of the ITAA 1997 does not apply in the income year in which your client made a personal superannuation contribution. | Detailed Reasoning - Age related conditions: Under subsection 290-165(2) of the ITAA 1997 the ability to claim a deduction ceases for contributions that are made after 28 days from the end of the month in which the person making the contribution turns 75 years of age. As your client was under 75 years of age when the contributions were made, Your Client will satisfy the age-related conditions. | Detailed Reasoning - Notice of intent to deduct conditions: Subsection 290-170(1) of the ITAA 1997 provides that for a person to be eligible for a deduction for a personal superannuation contribution, the person must give a valid notice of their intention to claim the deduction to the trustee of their superannuation fund (the fund trustee), and must receive an acknowledgment of receipt of the notice. Paragraph 290-170(1)(b) of the ITAA 1997 states: the notice must be given before: (i) if you have lodged your income tax return for the income year in which the contribution was made on a day before the end of the next income year - the end of that day; or (ii) otherwise - the end of the next income year; 1. In addition, Your Client must also have been given an acknowledgement of the notice by the trustee of the superannuation fund. 2. In this case, Your Client intends to provide the trustee of the superannuation fund with a written notice stating your client's intention to claim a superannuation deduction for personal superannuation contributions made in the 20YY-ZZ income year. Your client fully expects that the trustee will acknowledge receipt of Your Client's notice. Provided this occurs then the notice of intent to deduct conditions under section 290-170 of the ITAA 1997 will be satisfied. | Detailed Reasoning - Deduction limits: 3. Section 290-175 of the ITAA 1997 provides that the deduction cannot be more than the amount specified in the notice of intent to deduct a contribution. 4. Provided the amount of the deduction Your Client intends to claim does not exceed the amount specified in the notice of intent to claim a deduction, Your Client will satisfy this requirement. 5. The allowable deduction is also limited under subsection 26-55(2) of the ITAA 1997 to the amount of assessable income remaining after subtracting all other deductions (excluding previous year's tax losses and any deductions for farm management losses) from a taxpayer's assessable income. 6. Thus a deduction for personal superannuation contributions cannot add to, or create, a loss. | Detailed Reasoning - Conclusion: 7. As Your Client will satisfy the conditions in sections 290-155, 290-165 and 290-170 of the ITAA 1997 and was not required to satisfy section 290-160, Your Client will be entitled to claim a deduction for personal superannuation contributions made in the 20YY-ZZ income year, provided the deduction does not add to or create a tax loss in that income year.