Private ruling: Personal superannuation contributions deduction
Published: September 2017
Ruling period: Income year ended 30 June 2016
Date scheme commenced: 1 July 2015

Ruling: Q1: For the purposes of section 290-150 of the Income Tax Assessment Act 1997 (ITAA 1997), does a person (the Taxpayer) meet the maximum earnings as employee condition in section 290-160 of the ITAA 1997 in the 2015-16 income year? | A1: No

Relevant facts and circumstances: The Taxpayer owns and manages a public psychology practice (the Practice) as a sole trader. The Taxpayer provided psychology services to an entity (the Company) as an independent contractor for more than twenty years. There is no Employment Agreement or Enterprise Agreement between the Company and the Taxpayer. The Taxpayer was able to accept or reject work referred by the Company based on the availability of appointment times at the Practice. The Taxpayer exercised autonomy in managing referred work, and undertook the referred work on Practice premises and within the Practice's hours of operation. The Company did not provide the Taxpayer with equipment or provide any reimbursement or allowance for the equipment used by the Taxpayer in the course of their work. The Company paid the Taxpayer an hourly rate plus GST. Quarterly business statements were completed by the Taxpayer. The Company advised the Taxpayer that all independent contractors who provide personal services under a contract that is wholly or principally for labour are considered to be 'employees' for the purposes of Superannuation Guarantee (Administration) Act 1992 (SGAA). From 2014-15 income year, the Taxpayer provided their services to the Company through a labour hire company (the Labour Hire Company). Superannuation guarantee (SG) contributions have been paid by the Labour Hire Company on the Taxpayer's behalf in the 2015-16 income year. In the 2015-16 income year, the Taxpayer made personal superannuation contributions to their superannuation fund (the Fund) and their self-managed superannuation fund (SMSF). The Fund and the SMSF are complying superannuation funds. The trustee of the Fund provided an Acknowledgement of Notice of Intent to claim a deduction for the personal superannuation contribution. The trustee of the SMSF provided an Acknowledgement of Notice of Intent to claim a deduction for the personal superannuation contribution. The Taxpayer's assessable income for the 2015-16 income year includes: Salary or wages paid by the Labour Hire Company; Director's fees paid by another entity (the Second Company).

Relevant legislative provisions: Income Tax Assessment Act 1997 Subdivision 290-C | 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, section 290-165. | Income Tax Assessment Act 1997 , section 290-170(1). | Income Tax Assessment Act 1997 , section 290-170(2).

Reasons for decision: Summary: The Taxpayer was engaged in employment activities in the 2015-16 income year which resulted in the Taxpayer being treated as an employee for the purposes of the SGAA. Consequently, the maximum earnings as employee condition in section 290-160 of the ITAA 1997 applies to the Taxpayer in the 2015-16 income year. The Taxpayer does not meet the maximum earnings as an employee condition in section 290-160 of the ITAA 1997, because more than 10% of the Taxpayer's total assessable income for the 2015-16 income year is attributable to those employment activities. The Commissioner of Taxation (the Commissioner) does not have discretion to treat the Taxpayer as having met the maximum earnings as an employee condition. | Detailed Reasoning - Detailed reasoning: A person may claim a deduction for contributions made to their superannuation fund for the purpose of providing a benefit for themselves (or their dependants after death) under section 290-150 of the ITAA 1997. However, subsection 290-150(2) of the ITAA 1997 states that all conditions in sections 290-155, 290-160 (if applicable), 290-165 and 290-170 must also be satisfied for and individual to deduct a contribution made in that income year. | Detailed Reasoning - Maximum earnings as an employee condition: Subsection 290-160 of the ITAA 1997 applies if: (a) In the income year in which you make the contribution, you engage in any of these activities: Holding an office or appointment; Performing functions or duties; Engaging in work; 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 has not been enacted). Superannuation Guarantee Ruling SGR 2005/1 Superannuation guarantee: who is an employee? (SGR 2005/1) explains when an individual is considered to be an 'employee' under section 12 of the SGAA. Relevantly, in paragraph 10 of SGR 2005/1, the Commissioner states: 10. The classification of a person as an employee for the purposes of the SGAA is not solely dependent upon the existence of a common law employment relationship. While the definition includes persons who at common law would be regarded as employees, it also extends to: A person who is entitled to payment for the performance of duties as a member of the executive body of a body corporate (subsection 12(2)); A person who works under a contract that is wholly or principally for the labour of the person (subsection 12(3)) (see paragraph 11); … At paragraph 13 of SGR 2005/1, the Commissioner adds: 13. Where an individual performs work for another party through an entity such as a company or trust, there is no employer-employee relationship between the individual and the other party for the purposes of the SGAA, either at common law or under the extended definition of employee. This is because the company or trust (not the individual) has entered into an agreement rather than the individual. However, the individual may be the employee of the intermediary company or trust, depending on the terms of the arrangement. In this case, based on the evidence provided, the Taxpayer entered into an agreement with the Labour Hire Company to provide their services to the Company under a contract that is wholly or principally for the Taxpayer's labour. Consequently, as required, the Labour Hire Company treated the Taxpayer as an employee for the purposes of the SGAA, and made the required SG contributions on behalf of the Taxpayer. In addition, the Taxpayer received a payment from the Second Company for the performance of duties as a director of the Second Company. Therefore, the Taxpayer was engaged in employment activities in the 2015-16 income year which resulted in the Taxpayer being treated as an employee for the purposes of the SGAA. Where a person engages in activities as a result of which they are treated as an employee for the purposes of the SGAA, in accordance with subsection 290-160(2) of the ITAA 1997, to deduct the contribution, less than 10% of the total of the following must be attributable to employment activities: Assessable income for the income year; Reportable fringe benefits total for the income year; and The total of reportable employer superannuation contributions for the income year. The Commissioner's view on the application of section 290-160 of the ITAA 1997 is set out in Taxation Ruling TR 2010/1 Income tax: superannuation contributions (TR 2010/1). At paragraphs 63 and 64 of TR 2010/1, the Commissioner states: 63. Assessable income, reportable fringe benefits total and reportable employer superannuation contributions are to be given their statutory meaning. In this regard, a person's assessable income is usually a gross amount worked out ignoring expenses incurred in gaining the income. 64. All amounts that are attributable to the 'employment' activity are taken into account as assessable income in the 10% test. These include: The salary or wages (as used in its ordinary meaning) from the activity; Allowances and other payments earned by an employee; The other payments, such as commission, director's remuneration and contract payments, that are treated as salary or wages by section 11 of the SGAA for those persons who engage in an 'employment' activity in a capacity other than a common law employee; Under section 11 of the SGAA, payments made to a person under a contract that is wholly or principally for the labour of the person, are treated as salary or wages for the purposes of section 290-160 of the ITAA 1997. Consequently, the payment made by the Labour Hire Company to the Taxpayer, is the Taxpayer's assessable income attributable to their employment activities in the 2015-16 income year. The total of the Taxpayer's assessable income, reportable fringe benefits and reportable employer contributions attributable to employment activities in the same year was 15% of the Taxpayer's assessable income. As this is greater than 10%, the Taxpayer does not meet the maximum earnings as an employee condition in section 290-160 of the ITAA 1997. Where a person does not meet the maximum earnings as employee condition under section 290-160 of the ITAA 1997, there is no discretion in Subdivision 290-C of the ITAA 1997 that allows the Commissioner to treat the person as having met the maximum earnings as employee condition.