Private ruling: Deductibility of Personal Super Contributions
Date of advice: 29 March 2017
Published: August 2017
Ruling period: Income year ending 30 June 20YY
Date scheme commenced: 1 July 20XX

Ruling: Q1: Will the income of an Australian resident employed overseas by a foreign employer will be counted in the maximum earnings test stated in 290-160(2) of the Income Tax Assessment Act 1997 (ITAA 1997) if the income is assessable income? | A1: Yes


Relevant legislative provisions: 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. | Income Tax Assessment Act 1936 section 23AG | Superannuation Guarantee (Administration) Act 1992 section 12.

Reasons for decision: Summary: The Taxpayer is engaged in work that results in them being treated as an employee. The income of the Taxpayer paid from the foreign employer will be counted in the maximum earnings test stated in 290-160(2) ITAA 1997 as the income is assessable income. | Detailed Reasoning - Detailed reasoning: A person can claim a deduction for a personal superannuation contribution made to a complying superannuation fund or retirement savings account (RSA), for the purpose of providing superannuation benefits for themselves under section 290-150 of the ITAA 1997. However, the conditions listed under section 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: ● Where applicable, you must not exceed the 'maximum earnings as employee condition'. ● Where the contribution is made to a superannuation fund, the fund must be complying in the financial year that the contribution was made. ● You must satisfy the age related conditions. ● You must have given a valid notice of intent to the superannuation fund or RSA provider in the approved form by the required time and received acknowledgment from the fund. | Detailed Reasoning - Maximum earnings as employee condition: Section 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: (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). According to section 290-160(2) of the ITAA 1997, in order for the personal superannuation contribution to be tax deductible, income attributable to employment activities must be less than 10% of the total of the following: a) your assessable income for the income year; b) your reportable fringe benefits total for the income year; c) the total of your reportable employer superannuation contributions for the income year. Under section 290-160 of the ITAA 1997, if an individual is engaged in an 'employment' activity in the income year in which the person makes a contribution; they will need to meet the maximum earnings test. A person will be engaged in an 'employment' activity if they are engaged in an activity in the income year that results in them being treated as an employee for the purposes of the SGAA. Superannuation Guarantee Ruling 2005/1 entitled 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. Paragraph 21 of SGR 2005/1 makes the following comments in relation to who is an 'employee': The SGAA defines 'employee' in section 12. The definition is both a clarifying and extending provision. Subsection 12(1) defines the term 'employee' as having its ordinary meaning - that is, its meaning under common law. If a worker is held to be an employee at common law, then they will be an employee under the SGAA... As noted previously, an employee has its ordinary meaning under common law. A person is engaged in an employment activity when they are physically carrying out the obligations and duties of the job or work and receive a payment in the form of salary or wages in return for labour or services. As stated in your private ruling application, the Taxpayer: ● is employed by a non-Australian resident employer ● the income received by the Taxpayer was earned in foreign countries. In the application of the maximum earnings test, the relevant employment activity need not be an activity in Australia. Paragraph 251 of Taxation Ruling TR 2010/1 entitled Income tax: superannuation contributions states “ the SGAA does not contain any territorial nexus that limits which individuals will be treated as employees for the purposes of the SGAA. ” Furthermore, paragraph 262 of TR 2010/1 states: “ the 'employment' income of an Australian resident employed overseas by a foreign employer will be counted in the maximum earnings test if the income is assessable income .” Employment income of an Australian resident employed overseas by a foreign employer will therefore be counted in the maximum earnings test if the income is assessable income. Based on the above, the taxpayer is clearly engaged in work or other activities that result in the taxpayer being treated as an employee for the purposes of the SGAA. The 'maximum earnings test' requires that less than 10% of the total of the contributor's assessable income, reportable fringe benefits total and total reportable employer superannuation contributions for the income year is attributable to their employment related activities. In this case, income paid by the foreign employer to the Taxpayer is assessable income for the purposes of the maximum earnings test and for the purposes of what constitutes assessable income to be declared in the income tax return of the taxpayer. It should be noted that, under section 23AG of the Income Tax Assessment Act 1936 (ITAA 1936), foreign earnings derived from certain activities by an Australian resident taxpayer may be exempt from being included in assessable income. This section, however, only applies to a very small category of overseas workers. For example, if the foreign earnings are attributable to Australia's overseas aid program, a relief fund or an exempt institution, the foreign earnings will be exempt. In this case, as the foreign income derived by the taxpayer is not attributable to any of the exemptions under subsection 23AG(1AA) of the ITAA 1936, the taxpayer's income derived whilst working for the foreign employer is not exempt. As noted previously, when activities result in a taxpayer being treated as an employee for the purposes of the SGAA, then the total of the contributor's assessable income, reportable fringe benefits total and total reportable employer superannuation contributions for the income year attributable to their employment related activities, must be less than 10% of their total assessable income, reportable fringe benefits and reportable employer superannuation contributions in order for the taxpayer to claim a deduction for a personal contribution. | Detailed Reasoning - Other relevant comments: In the 2016-17 Budget, the Government announced that all individuals under the age of 65, and those aged 65 to 74 who meet the work test, will be entitled to claim a tax deduction for personal contributions to eligible superannuation funds up to the concessional contributions cap. These amounts will then count towards an individual's concessional contributions cap and be subject to 15 per cent contributions tax in the fund. To access the tax deduction, individuals will need to lodge a notice of their intention to claim the deduction with their superannuation provider. Generally this notice will need to be lodged before they lodge their income tax return. For more information please enter 'QC 48864' into the search box on our website at ato.gov.au

Relevant facts: The Taxpayer is an Australian resident for tax purposes. | The Taxpayer was employed by a Foreign Employer and worked overseas during the 20XX-YY income year. | The Taxpayer's income from the Foreign Employer make up almost 100% of their total assessable income, with a small proportion of their income derived from interest and dividend payments. | The Taxpayer wishes to make a personal contribution of more than $30,000 to their superannuation fund in the 20XX-YY income year and claim a tax deduction for this amount.