Private ruling: Deductibility for personal superannuation contributions
Published: January 2014
Date scheme commenced: 1 July 2013

Ruling: Q1: Can your client claim a deduction for personal superannuation contributions to be made to a constitutionally protected fund in the 2013-14 income year under section 290-150 of the Income Tax Assessment Act 1997 ? Advice/Answer Yes. This review applies for the following period Year ended 30 June 2014

Relevant facts and circumstances: Your client operates a private business. You have advised that the income your client will receive from employment activities during the 2013-14 income year is less than 10% of your client's total assessable income, reportable fringe benefits and reportable employer superannuation contributions, therefore will satisfy the maximum earnings as an employee condition in this income year. Your client is a member of a fund (the Fund). The Fund is a constitutionally protected fund (CPF). The Fund is also an exempt public sector superannuation scheme and a complying superannuation fund. You understand that under the rules which govern the Fund, your client is able to make personal superannuation contributions to the Fund. In this light, your client intends to make personal contributions to the Fund in the 2013-14 income year. Your client intends to provide the trustee of the Fund with a valid notice in the approved form of your client's intention to claim a tax deduction for the personal contributions made in the 2013-14 income year, and the trustee will acknowledge this notice in respect of the personal contributions. You have advised that the notice 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. You have advised that a deduction for the proposed contribution will not add to or create a loss for your client in the 2013-14 income year. Your client will be under age 75 at all times during the 2013-14 income year.

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 Subsection 290-150(2). | 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 Paragraph 290-160(1)(a). | Income Tax Assessment Act 1997 Paragraph 290-160(1)(b). | 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 Section 290-175. | Income Tax Assessment Act 1997 Subparagraph 292-25(2)(c)(iii). | Income Tax Assessment Act 1997 Paragraph 292-85(2)(c). | Income Tax Assessment Act 1997 Subparagraph 292-90(2)(c)(iv). | Income Tax Assessment Act 1997 Subsection 995-1(1). | Income Tax Assessment Regulations 1997 Regulation 995-1.04.

Reasons for decision: Summary: Based on the information you have provided, your client is eligible to claim a deduction for the personal superannuation contribution to be made in the 2013-14 income year, provided the deduction does not add to or create a tax loss in that income year. | Detailed Reasoning - Personal superannuation contributions made in the 2013-14 income year: 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. These conditions are explained in detail in Taxation Ruling TR 2010/1 entitled '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, that fund must be a complying superannuation fund for the income year in which you made the contribution. In this instance, your client proposes to make a personal contribution to a fund (the Fund). The Fund is an exempt public sector superannuation scheme, and is a complying superannuation fund subject to a state government supervision. Therefore, your client will satisfy this condition. | Detailed Reasoning - Maximum earnings as an employee condition: Subsection 290-160(1) of the ITAA 1997 states: 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). Subsection 290-160(2) of the ITAA 1997 states: 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; (c) the total of your reportable employer superannuation contributions for the income year. Where the person engages in any 'employment' activities in the income year a deduction can only be claimed where the assessable income, reportable fringe benefits total, and (from 1 July 2009) reportable employer superannuation contributions attributable to the 'employment' activities are together less than 10% of the person's total assessable income, reportable fringe benefits total, and reportable employer superannuation contributions in the income year that the contribution is made. Further, if the person has more than one period of engaging in 'employment' activities in an income year, the assessable income, reportable fringe benefits total, and reportable employer superannuation contributions attributable to each period of 'employment' is aggregated. 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 10% rule in order to claim a deduction for their personal superannuation contributions. 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. In this case, you have advised that your client's total assessable income, reportable fringe benefits and reportable employer superannuation contributions attributable to the activities that result in your client being treated as an employee for the purposes of the SGAA, will be less than 10% of your client's total assessable income for the 2013-14 income year. Therefore, your client will satisfy the maximum earnings as an employee condition under section 290-160 of the ITAA 1997. | 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 old. As your client will be under age 75 at the time your client intends to make the proposed contribution to the Fund during the 2013-14 income year, your client will satisfy the age-related conditions. | 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 your client's intention to claim a deduction in respect of the contribution, and your client 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 the notice to the fund trustee by the earlier of the date your client's income tax return is lodged 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: Ÿ your client is a member of the fund; Ÿ 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); Ÿ the fund trustee has not begun to pay a superannuation income stream based on the contribution; or · before the notice is given: Ÿ a contributions splitting application has not been made in relation to the contribution; and; Ÿ the fund trustee has not rejected the application. You have advised that a valid notice will be provided to the fund trustee of your client's intention to claim a deduction in respect of the proposed contribution. You have also advised that your client will receive a written notice from the trustee acknowledging receipt of your client's notice of intent for the contribution. You assert that your client will meet the requirements of section 290-170 of ITAA 1997 when your client has taken these actions. Provided your client lodges a valid notice of intent with the fund trustee before your client's income tax return for the 2013-14 income year is lodged or by 30 June 2015, whichever is the earlier, and the trustee duly acknowledges your client's notice, the notice of intent to deduct conditions under section 290-170 of the ITAA 1997 will be satisfied. | Detailed Reasoning - Deduction limited by amount specified in notice: 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. Provided the amount of the deduction your client will claim does not exceed the deductible amount specified in his section 290-170 notice, your client will also satisfy this requirement. | Detailed Reasoning - Deduction limits: As noted in your application, 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. Therefore a deduction for personal superannuation contributions cannot add to or create a loss. You have advised that a deduction for the proposed contribution will not add to or create a loss in the 2013-14 income year. Therefore it is accepted that the deduction for the contribution will not create or increase a loss in this income year. | Detailed Reasoning - Conclusion: As your client will satisfy all the required conditions in subdivision 290-C of the ITAA 1997, your client can claim a deduction in the 2013-14 income year for the entire personal contribution your client intends to make to the Fund in this income year. 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 proposed personal contributions from being concessional contributions in the 2013-14 income year. As a result, the contribution will not be counted towards your client's annual concessional contributions cap for this income year. To the extent that the proposed 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 it will be counted towards your client's non-concessional contributions cap for the income year in which the contribution is made to the Fund. For the 2013-14 income year, the annual non-concessional contributions cap is $150,000.