Private ruling: Deductibility of superannuation contributions made on behalf of an employee
Date of advice: 28 November 2018
Published: March 2019
Ruling period: Income year ended 30 June 2018
Date scheme commenced: 1 July 2017

Ruling: Q1: Will your client be able to claim a deduction in the 2017-18 income year on the payment made in relation to superannuation contributions made on behalf of an employee under section 290-60 of the Income Tax Assessment Act 1997 ? | A1: No

Relevant facts and circumstances: On 25 June 2018, the taxpayer (Employer A) made an employer superannuation contribution (the Contribution) which was processed by their bookkeeper. Employer A intended for the Contribution to be made with respect to the income year ended 30 June 2018. The Contribution was paid by Employer A directly to the ATO Small Business Superannuation Clearing House (“ATO SBSCH”). According to ATO records, the Contribution which your client made on 25 June 2018 was in respect of two different employees. On 29 June 2018, the contribution was returned to Employer A’s bank account due to a payment discrepancy of 0.01 cents deducted by the ATO SBSCH. According to ATO records, this discrepancy occurred through the previous payment instruction stating an incorrect amount of additional employer contributions for one of the employees concerned. As a result of the payment discrepancy mentioned above, Employer A received an email from the ATO on 2 July 2018 stating that the amount they paid to the SBSCH does not match your payment instructions of 25 June 2018 and hence the ATO has returned their payment to their nominated bank account. Employer A stated that as 29 June 2018 was a Saturday, they, nor their employees, were made aware of the contribution being returned on 1 July 2018 which was a Monday, by which time it was too late to reprocess the contribution in the 2017-18 income year. In actual fact, 29 June 2018 was a Friday which is considered to be a business day which meant that the contribution was returned to them on 2 July 2018 which was actually a Monday, meaning that 1 July 2018 was actually a Sunday. Employer A intends to or already has re-contributed the rejected contribution in the year ended 30 June 2019. Employer A will contribute concessional contributions on behalf of the employee up to an including the employee’s concessional contributions cap for the 2018-19 income year. In fact, Employer A has repaid the $20,397.28 worth of superannuation contributions to the ATO on 10 July 2018 and the ATO has paid the amount of contributions relevant to each employee to their respective superannuation providers on 12 July 2018. Hence the accounts of the respective superannuation providers would have received these contributions during the income year ending 30 June 2019.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 290-60. | Income Tax Assessment Act 1997 Section 290-70. | Income Tax Assessment Act 1997 Section 290-75. | Income Tax Assessment Act 1997 Section 290-80.

Reasons for decision: Summary: Employer superannuation contributions for the 2017-18 income year Subsection 290-60(1) of the Income Tax Assessment Act 1997 (ITAA 1997) states that you (the employer) can deduct a contribution you make to a superannuation fund, or an RSA, for the purposes of providing superannuation benefits for another person who is your employee when the contribution is made. In relation to whether the purpose of the contributions is to provide employees superannuation benefits, paragraphs 7, 39 and 41 of Taxation Ruling TR 2010/1 state the Commissioner’s view on a person’s or contributor’s ‘purpose’ ‘as follows: 7. A person’s purpose is the object which they have in view or in mind. 39. Whether a superannuation contribution is deductible is determined by regard to the purpose of the contributor. The contributor’s purpose must be to provide superannuation benefits for a particular person or class of persons. 41. Providing superannuation benefits must be the person’s sole purpose. However, it does not matter that a person takes account if the incidental consequences of making a contribution such as obtaining a tax deduction. Provided that subsection 290-60(1) has been satisfied, as in that Employer A made superannuation contributions on behalf of their employees for the sole purpose of providing superannuation benefits, subsection 290-60(2) of the ITAA 1997 states that the conditions in sections 290-70, 290-75 and 290-80 must all be satisfied before Employer A can claim a deduction for the contributions made on behalf of their employee. However, subsection 290-60(3) states that if subsections (1) and (2) are satisfied, Employer A would only be able to deduct the contribution for the income year in which the contribution was made. If Employer A satisfies subsections 290-60(1) and 290-60(2) of the ITAA 1997, paragraph 12 of TR 2010/1 states that generally a contribution is made when the funds are received by the superannuation provider. In other words, this means that a contribution is deemed to be ‘made’ in the income year in which the superannuation provider receives the funds. This is because the situation of an employer paying the contribution directly to the ATO Small Business Clearing House (“ATO SBSCH”) is not covered in the table in paragraph 13 of TR 2010/1. Employment activity condition The condition in section 290-70 of the ITAA 1997 requires that in order for your client to deduct the contribution made on behalf of their employee, their employee must be: (aa) their employee in accordance with the expanded definition of an ‘employee’ provided in section 12 of the Superannuation Guarantee (Administration) Act 1992 (SGAA 1992); or (a) engaged in producing their assessable income; or (b) an Australian resident who is engaged in their business. Assuming that the employees of Employer A are Australian residents engaged in your client’s business and producing their assessable income, the Contribution made by Employer A satisfies this condition. Complying superannuation fund condition The condition in section 290-75 of the ITAA 1997 requires that if a contribution was made to a superannuation fund, the fund must be a complying superannuation fund for the income year in which the contribution is made. As the superannuation funds for the respective employees are complying superannuation funds, the Contribution made by Employer A has satisfied this condition. Age-related conditions Under subsection 290-80(1) 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 employee turns 75 years of age. Assuming that the employees of Employer A are aged less than 75 years during the 2017-18 income year, the Contribution made by your client would satisfy this condition. | Detailed Reasoning - Conclusion: Based on the above, we can say that as Employer A satisfies subsections (1) and (2) of section 290-60 of the ITAA 1997, they can claim a deduction for the superannuation contributions made on behalf of their employees (as mentioned in the facts and relevant circumstances section) under subsection 290-60(3) of the ITAA 1997 for the income year in which the contribution was made. However, according to paragraph 12 of TR 2010/1, a contribution is considered to have been ‘made’ during the income year in which the funds are received by the superannuation provider, not necessarily the income year in which the contribution was paid. In Employer A’s situation, the contribution was technically made on 12 July 2017 as this was the date when the accounts of the employees’ superannuation providers received the funds for the respective employees. Hence, as this contribution was made after 30 June 2018, Employer A would not be able to claim a deduction on this contribution for the year ended 30 June 2018. However, Employer A would be able to claim this deduction in the following income year, that being the income year ending 30 June 2019.