Private ruling: Deductibility of personal superannuation contributions
Published: May 2015
Ruling period: Year ending 30 June 2015.
Date scheme commenced: 1 July 2014.

Ruling: Q1: 1. Will the maximum earnings as employee condition under section 290-160 of the Income Tax Assessment Act 1997 (ITAA 1997) apply to you in the 2014-15 income year? 2. Will you be entitled to claim a deduction under section 290-155 of the ITAA 1997 in the 2014-15 income year? | A1: 1. No. 2. Yes.

Relevant facts and circumstances: You accepted a voluntary redundancy offer from your employer (the Employer) and your employment termination date was before 30 June 2014. During the 2013-14 income year you received a payment from the Employer being your salary up to your employment termination date. In the 2014-15 income year you received from the Employer: • a genuine redundancy payment • a lump sum payment for unused ling service leave • a lump sum payment for unused annual leave In the 2014-15 income year, you received a lump sum from your superannuation scheme (the Scheme) and you commenced to receive a periodic pension from the Scheme. You state that in the 2014-15 income year you would not be working for any employer and not be engaged in or perform any activity that would make you an employee for Superannuation Guarantee purposes. In the 2014-15 income year, you intend to make a one-off personal superannuation contribution to your complying superannuation fund (the Fund). You state that before lodging your tax return for the 2014-15 income year you will provide the Fund's trustee a written notice that you intend to claim a deduction for your personal contributions and that the trustee will acknowledge receipt of the notice. You are over 49 years of age.

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 section 290-160 | Income Tax Assessment Act 1997 section 290-165 | Income Tax Assessment Act 1997 section 290-170 Summary | You will not be subject to the maximum earnings test under section 290-160 of the Income Tax Assessment Act 1997 (ITAA 1997) in 2014-15 income year because you will not be engaged in any employment activities during that income year. As the maximum earnings test does not apply to you, and you will satisfy the conditions under sections 290-155 and 290-165 of the ITAA 1997, you will be entitled to claim a deduction for personal superannuation contributions made in the 2014-15 income year provided that you satisfy the notice of intent to deduct conditions under section 290-170 of the ITAA 1997. | Detailed reasoning | Personal deductible 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 ITAA 1997. However, the conditions in sections 290-155, 290-160, 290-165 and 290-170 of the ITAA 1997 must also be satisfied for the person to claim the deduction. | 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 the person made the contribution. | In this case, you have advised that you intend to make a personal superannuation contribution to a complying superannuation fund (the Fund). Therefore the complying superannuation fund condition will be satisfied. | Maximum earnings as an employee condition | Subsection 290-160(1) of the ITAA 1997 states: | This section 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). For those persons who fall under the requirements outlined above, 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. This calculation is referred to as the maximum earnings test. | The operation of the maximum earnings test is discussed in Taxation Ruling TR 2010/1 (TR 2010/1) entitled ' Income tax: superannuation contributions.' Relevantly, paragraphs 58 and 59 state: | 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'. | Furthermore, TR 2010/1 provides an example which refers to the 'maximum earnings test'. Paragraphs 88 and 89 of TR 2010/1 states: | 88. Caitlin terminates her employment with Bling Pty Ltd on 30 June 2009 and was paid unused long service leave and annual leave on 3 July 2009. Caitlin made a contribution of $5,000 to her complying superannuation fund on 9 July 2009. Caitlin was not engaged in any employment activities for the 2009-10 income year. | 89. As Caitlin was not engaged in any employment activities in the 2009-10 income year, she does not need to meet the earnings test in relation to her $5,000 contribution. | In this case, you ceased employment with your employer (the Employer) in the 2013-14 income year. You have advised that you will not be engaging in activities during the 2014-15 income year that would make you an employee for the purposes of the Superannuation Guarantee (Administration) Act 1992 (SGAA). Even though you received payments from the Employer in the 2014-15 income year, because you ceased employment prior to the commencement of the 2014-15 income year, you are not considered to be engaged in an employment activity for the 2014-15 income year. | Further, the pension income you receive from the Scheme is not income that is attributable to employment as an employee for the purposes of subsection 290-160(1) of the ITAA 1997. | Therefore, you have not engaged in any employment activities for the 2014-15 income year thus far. On the basis of the facts provided and you are not intending to engage in any activities that would make you an employee for the purposes of the SGAA for the remainder of the income year, you will not be subject to the maximum earnings test under section 290-160 of the ITAA 1997. | 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. | The facts provided show you will satisfy the age-related conditions. | Notice of intent to deduct conditions | According to section 290-170 of the ITAA 1997, in order to deduct a contribution, you are required to provide to the trustee of the Fund a valid notice, in the approved form, of your intention to claim a deduction. The notice must be given by the earlier of the date you lodge your income tax return or the end of the income year following the year in which the contribution was made. You must also have been given an acknowledgment of receipt of the notice by the trustee of the Fund. | A notice of intent for your client's contributions will not be valid if one or more of the following conditions in subsection 290-170(2) of the ITAA 1997 are satisfied: | (a) the notice is not in respect of the contribution; | (b) the notice includes all or part of an amount covered by a previous notice; | (c) when you gave the notice: | (i) you were not a member of the fund or the holder of the RSA; or | (ii) the trustee or RSA provider no longer holds the contribution; or | (iii) the trustee or RSA provider has begun to pay a superannuation income stream based in whole or part on the contribution; | (d) before you gave the notice: | (i) you had made a contributions splitting application... in relation to the contribution; and | (ii) the trustee or RSA provider had not rejected the application. | If you provide the trustee of the Fund a valid notice of intent to deduct before the due date and are given acknowledgement of receipt of the notice by the trustee of the Fund, you will have satisfied the conditions under section 290-170 of the ITAA 1997. | As you will have already satisfied the conditions under sections 290-155 and 290-165 of the ITAA 1997 and will not be required to satisfy section 290-160 of the ITAA 1997, satisfying the conditions under section 290-170 of the ITAA 1997 will allow you to claim a deduction for personal superannuation contributions made in the 2014-15 income year. | Deduction limits | A person can claim a full deduction for the amount of the contribution made up to the concessional contributions cap. | However, 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. Thus a deduction for personal superannuation contributions cannot add to or create a loss. | Contribution limits | The concessional contributions cap for the 2014-15 income year is $35,000 if you are aged 49 years or over on the last day of the previous income year. | Concessional contributions include employer contributions (including contributions made under a salary sacrifice arrangement) and personal contributions claimed as a tax deduction by a person. | Therefore, as you were over 49 years of age on 30 June 2014, you will be able to claim a deduction up to the concessional contributions cap of $35,000 .