Private ruling: Deductibility of personal superannuation contributions
Published: December 2014
Ruling period: Year ending 30 June 2014
Date scheme commenced: 1 July 2013

Ruling: Q1: Can your client claim a deduction for a personal superannuation contribution made during the 2013-14 income year under section 290-150 of the Income Tax Assessment Act 1997 (ITAA 1997)? | A1: Yes, provided all of the conditions have been satisfied.

Relevant facts and circumstances: Your client operates a private practice as a Specialist. You have advised that your client has not been employed in any capacity during the 2013-14 income year. Your client will be under age 75 at all times during the 2013-14 income year. Your client is a member of a superannuation fund (the Fund) which is a constitutionally protected fund (CPF).The Fund is also an exempt public sector superannuation scheme and a complying superannuation fund. Your client has made a personal superannuation contribution of $X to the Fund during the 2013-14 income year. Your client has provided a written notice to the Trustee for the Fund, stating that they intend to claim a deduction for this contribution. Your client intends to receive acknowledgment from the trustee of the Fund with respect to their notice of intent described above. You have advised that a deduction for the contribution will not add to or create a loss for your client in 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 Subparagraph 292-25(2)(c)(iv). | Income Tax Assessment Act 1997 Subsection 995-1(1). | Income Tax Assessment Act 1997 subsection 26-55(2).

Reasons for decision: Summary: Provided all the conditions have been satisfied, your client will be able claim a deduction for personal superannuation contributions made in the 2013-14 income year. | Detailed Reasoning - Personal superannuation contributions: 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 (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, it must be made to a complying superannuation fund for the income year of the fund in which you made the contribution. In this instance your client has made a contribution to the Fund. The Fund is an exempt public sector superannuation scheme, and is a complying superannuation fund subject to State Government supervision. Therefore, your client satisfies this condition. | Detailed Reasoning - Maximum earnings as an employee condition: Subsection 290-160(1) of the ITAA 1997 operates to apply 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)): • 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 in the 2012-13 income year, 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 paragraph 58 of TR 2010/1 the Commissioner states that those persons who have not engaged in an 'employment' activity in the income year in which they make a contribution are not subject to the maximum earnings test. | Detailed Reasoning - The maximum earnings as an employee condition does not apply to your client: The employment activity condition outlined in subsection 290-160(1) of the ITAA 1997 has two parts. To satisfy this condition, therefore, a taxpayer must both: • engage in any of the employment activities specified in paragraph 290-160(1)(a) of the ITAA 1997, and • as a result be treated as an employee for the purposes of the SGAA, as specified in paragraph 290-160(1)(b) of the ITAA 1997. Your client operates in private practice as a Specialist. You have advised that your client has not been employed in any capacity during the 2013-14 income year. Based on the facts provided, the maximum earnings as an employee condition does not apply to your client in the 2013-14 income year, because your client will not be engaged in an employment activity during this income year. Consequently, section 290-160 of the ITAA 1997 does not apply to your client in this income year. | 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 of age. Your client meets this age-related condition. | 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 his intention to claim a deduction in respect of the contribution, and he 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 his notice to the fund trustee by the earlier of the date he lodges his income tax return 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: _ your client is a member of the fund; _ 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); _ the fund trustee has not begun to pay a superannuation income stream based on the contribution; or • before the notice is given: _ a contributions splitting application has not been made in relation to the contribution; and; _ the fund trustee has not rejected the application. You have advised that your client has provided a valid notice of their intention to claim a deduction to the fund trustee in respect of the contributions made during the 2013-14 income year. You have also advised that your client will receive a written notice from the trustee acknowledging receipt of their notice of intent for the contribution. Provided the trustee duly acknowledges your client's notice in accordance with the above, the conditions under section 290-170 of the ITAA 1997 will be satisfied. | Detailed Reasoning - Deduction limits: 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. Further, 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 year's tax losses and any deductions for farm management losses) from a taxpayer's assessable income. That is, a deduction for personal superannuation contributions cannot add to or create a loss. You have confirmed that the deduction will not add to or create a loss for the 2013-14 income year. As such, this condition is satisfied. | Detailed Reasoning - Conclusion: Provided the trustee of the Fund duly acknowledges your client's notice of their intention to claim a deduction, your client will satisfy all the required conditions under subdivision 290-C of the ITAA 1997. As such, your client will be able claim a deduction for the personal superannuation contributions made during the 2013-14 income year. | Detailed Reasoning - Further issues for you to consider: 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 contribution from being a concessional contribution in the relevant income year. As a result, the contribution will not be counted towards your client's annual concessional contributions cap for the 2013-14 income year. Further, the contribution is not a non-concessional contribution pursuant to subparagraph 292-90(2)(c)(iv) of the ITAA 1997. However to the extent that the 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 will therefore be counted towards their non-concessional contributions cap for the income year in which the contribution is made to the Fund.