Private ruling: Deductibility of personal superannuation contributions
Date of advice: 30 August 2017
Published: December 2017
Ruling period: Income year ended 30 June 2016.
Date scheme commenced: 1 July 2015.

Ruling: Q1: Is the cash prize received by the Taxpayer attributable to the Taxpayer’s employment activities for the purposes of section 290-160 of the Income Tax Assessment Act 1997 (ITAA 1997)? | A1: No.

Relevant facts and circumstances: The Taxpayer runs a X agency business through a partnership. The Taxpayer’s sources of income include partnership distribution, interest and dividend income and foreign rental income. Their non-employment sources of income typically exceed 90% of their total income. For the income year ended 30 June 2016, the Taxpayer made a personal concessional superannuation contribution to their Superannuation Fund. In early 201X, the Taxpayer won a random prize organised by a corporation. They were eligible to enter the draw due to the number of bookings they made through their X agency business. No application form was submitted by the Taxpayer in order to be eligible for the prize draw. PAYG Withholding tax was withheld from the prize by the corporation. The corporation state that tax was withheld under section 12-35 of the Tax Administration Act 1953 . The corporation has confirmed that the Taxpayer was not employed by them. Further, the travel agency does not have a direct agreement with the corporation. The partnership, through its membership with an agency group, has an indirect relationship with the corporation.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 290-150. | 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 Subsection 290-160(2). | Superannuation Guarantee (Administration) Act 1992 Subsection 6(1).

Reasons for decision: Summary: The cash prize paid to the Taxpayer is not attributable to their employment activities for the 2015-16 income year. | Detailed Reasoning - Detailed reasoning: In accordance with section 290-150 of the ITAA 1997, a person who makes contributions to a superannuation fund for the purpose of providing superannuation benefits for themselves, can claim the deduction for contributions in the income year the contributions are made. However, to deduct the contributions, the person must satisfy a number of conditions, including the maximum earnings as employee condition set in section 290-160. Subsection 290-160(1) of the ITAA 1997 applies 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) of the ITAA 1997): ● 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, 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’. In TR 2010/1, the Commissioner discusses the operation of the maximum earnings as employee condition. In paragraphs 57 to 59 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. 59. 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. The term 'engaged' is not defined and takes its ordinary meaning. One of several meanings given to engaged is 'busy or occupied; involved'. Another meaning is 'under an engagement' where the ordinary meaning of 'engagement' is given as 'under an obligation or agreement'. Therefore a person is engaged in an employment activity while they remain employed or hold the office and receive a payment in relation to that employment. In this case, the Taxpayer was not employed by the corporation. They did not perform any employment services for the corporation, and is not considered to be engaged in work or other activities that result in them being treated as an employee for the purposes of the SGAA. Based on the above, the prize received by the Taxpayer in the 2015-16 income years will not be attributable to employment activities in the 2015-16 income year.