Private ruling: Deductibility of personal superannuation contributions
Published: December 2014
Ruling period: Income year ending 30 June 2015
Date scheme commenced: 1 July 2014

Ruling: Q1: Is your client entitled to claim a deduction under section 290-150 of the Income Tax Assessment Act 1997 (ITAA 1997) in respect of proposed personal superannuation contributions to be made during the 2014-15 income year? | A1: Yes, provided all of the conditions have been satisfied.

Relevant facts and circumstances: Your client is a member of a superannuation fund (the Fund), a complying superannuation fund. The Fund is a constitutionally protected fund (CPF). Your client is also a member of a self-managed superannuation fund (the SMSF), a complying self-managed superannuation fund. In the 2014-15 income year your client intends to make the following personal superannuation contributions: • $X to the Fund; • $Y to the SMSF. For the 2014-15 income year, your client: • will be self-employed and will receive minimal investment income. • will not hold an office nor perform any work or other activities that would result in them being treated as an employee for the purposes of the Superannuation Guarantee (Administration) Act 1992 Your client will provide valid notices, in the approved form, to the trustees of the Fund and the SMSF respectively, stating that they intend to claim a deduction for the personal superannuation contributions made in the 2014-15 income year. The notices will be given by the earlier of the date your client lodges their income tax return or the end of the income year following the year in which the contribution is made. The deductions claimed by your client in relation to the proposed contributions will not add to or create a loss in the 2014-15 income year. Your client is below 75 years of age.

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 | Income Tax Assessment Act 1997 subsection 290-170(2) | Income Tax Assessment Act 1997 subparagraph 291-25(2)(c)(iii) | Income Tax Assessment Act 1997 subparagraph 291-25(2)(c)(iv) | Income Tax Assessment Act 1997 subsection 307-220(1) | Income Tax Assessment Act 1997 subsection 307-220(2)

Reasons for decision: Summary: Provided all the conditions have been satisfied, your client will be able claim a deduction for personal superannuation contributions made to both the constitutionally protected fund and the self-managed superannuation fund for the 2014-15 income year. | Detailed Reasoning - Personal deductible superannuation contributions: A person can claim a deduction for personal contributions made to a superannuation fund for the purpose of providing superannuation benefits for themselves under section 290-150 of the Income Tax Assessment Act 1997 (ITAA 1997). However, 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. | 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 the contribution is made. In this instance, your client intends to make the personal contributions to the Fund and the SMSF. As both the Fund and the SMSF are complying superannuation funds, the condition in section 290-155 of the ITAA 1997 will be satisfied the 2014-15 income year. | Detailed Reasoning - Maximum earnings as an employee condition: Subsection 290-160(1) of the ITAA 1997 operates to apply the maximum earnings as an employee condition only if, in the income year in which the contribution is made, the person is engaged in any of the following activities (paragraph 290-160(1)(a)): • holding an office or appointment (for example, a director of a company); • performing functions or duties; • engaging in work; • doing acts or things; and the activities result in that person being treated as an employee for the purposes of the Superannuation Guarantee (Administration) Act 1992 (SGAA). For those persons who are engaged in any 'employment' activities in the 2012-13 income year, subsection 290-160(2) of the ITAA 1997 prescribes that a deduction for personal contributions can only be claimed where the sum of their: • assessable income • reportable fringe benefits total and • reportable employer superannuation contributions attributable to the 'employment' activities is less than 10% of the total of that person's assessable income, reportable fringe benefits total and reportable employer superannuation contributions. The term 'reportable employer superannuation contributions' includes salary sacrifice contributions made for the person's benefit in that income year. This calculation is referred to as the 'maximum earnings test'. | Detailed Reasoning - The maximum earnings as an employee condition does not apply to your client: The employment activity condition outlined in subsection 290-160(1) of the ITAA 1997 has two parts. To satisfy this condition, therefore, a taxpayer must both: • engage in any of the employment activities specified in paragraph 290-160(1)(a) of the ITAA 1997, and • as a result be treated as an employee for the purposes of the SGAA, as specified in paragraph 290-160(1)(b) of the ITAA 1997. The facts provided in this case indicate that your client will not engage in any activities in the 2014-15 income year that would make them an employee for the purposes of the Superannuation Guarantee (Administration) Act 1992 . Accordingly, your client will not be subject to the maximum earnings test under section 290-160 of the ITAA 1997 for the 2014-15 income year. | Detailed Reasoning - Age-related conditions: Relevantly, 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 will be under 75 years of age during the 2014-15 income year when the contributions will be made, your client meets this age-related condition. | Detailed Reasoning - Notice of intent to deduct conditions: Section 290-170 of the ITAA 1997 provides that your client must give to the trustee of the complying superannuation fund (the fund trustee) a valid notice, in the approved form, of his intention to claim a deduction in respect of the contribution, and he must also have been given an acknowledgment of receipt of the notice by the fund trustee. Section 290-170 of the ITAA 1997 also provides that your client must give his notice to the fund trustee by the earlier of the date he lodges his income tax return or the end of the income year following the year in which the contribution was made. In addition, the fund trustee is required to acknowledge your client's notice without delay. A notice will be valid as long as the following conditions are satisfied: • the notice is in respect of the contribution; • the notice is not for an amount covered by a previous notice; _ at the time when the notice is given: _ your client is a member of the fund; _ the fund trustee holds the contribution (for example, a notice will not be valid if a partial roll-over of the superannuation benefit which includes the contribution covered in the notice has been made); _ the fund trustee has not begun to pay a superannuation income stream based on the contribution; or • before the notice is given: _ a contributions splitting application has not been made in relation to the contribution; and; _ the fund trustee has not rejected the application. Provided your client produces a valid notice of their intention to claim a deduction to the trustees of the Fund and the SMSF in respect of the proposed contributions and the trustees duly acknowledge the notices, the conditions under section 290-170 of the ITAA 1997 will be satisfied. | Detailed Reasoning - Deduction limits: Section 290-175 of the ITAA 1997 states that the deduction cannot be more than the amount covered by the notice given under section 290-170 of the ITAA 1997. Further, the allowable deduction is limited under subsection 26-55(2) of the ITAA 1997 to the amount of assessable income remaining after subtracting all other deductions (excluding previous years tax losses and any deductions for farm management losses) from a taxpayer's assessable income. That is, a deduction for personal superannuation contributions cannot add to or create a loss. You have confirmed that the deductions will not add to or create a loss for the 2014-15 income year. As such, this condition will be satisfied. | Detailed Reasoning - Conclusion: Provided your client produces a valid notice of their intention to claim a deduction to the trustees of the Fund and the SMSF in respect of the proposed contributions and the trustees duly acknowledge the notices, your client will satisfy all the required conditions under subdivision 290-C of the ITAA 1997. Once satisfied, your client will be able claim a deduction for the personal superannuation contributions made during the 2014-15 income year. | Detailed Reasoning - Further issues for you to consider: It is noted that the Fund is a constitutionally protected fund (CPF). Therefore, subparagraph 292-25(2)(c)(iii) of the ITAA 1997 operates to exclude the contribution from being a concessional contribution for a given income year. As a result, the proposed contribution will not be counted towards your client's annual concessional contributions cap for the 2014-15 income year. Further, the proposed contribution is not a non-concessional contribution pursuant to subparagraph 292-90(2)(c)(iv) of the ITAA 1997. However to the extent that the contribution forms part of the contributions segment of your client's superannuation interest in the CPF (which includes personal undeducted contributions), it will be a non-concessional contribution, and will therefore be counted towards their non-concessional contributions cap for the 2014-15 income year. As the SMSF is not a CPF, the normal contribution limits apply. Concessional contributions include all employer superannuation contributions and any personal contributions made to the SMSF for which a tax deduction was claimed. Therefore the intended contribution will count towards your client's concessional contributions cap. As your client was over 49 years of age on 30 June 2014, a concessional contribution cap will apply for the 2014-15 income year.