Private ruling: Deductibility of personal superannuation contributions
Date of advice: 7 January 2016
Published: March 2016
Ruling period: 20XX-YY income year
Date scheme commenced: 1 July 20XX

Ruling: Q1: Is your client entitled to claim a deduction under section 290-150 of the Income Tax Assessment Act 1997 (ITAA 1997) for personal superannuation contributions made in the 20XX-YY income year? | A1: Yes.

Relevant facts and circumstances: Your client was self-employed during the 20VV-WW and 20WW-XX income year. Your client became ill during the 20VV-WW income year. Your client was not eligible to work or partially eligible to work. Your client commenced a claim for income protection insurance for their loss of self-employment income during the 20WW-XX income year. Your client was not involved in any activities that resulted in your client being treated as an employee for superannuation guarantee purposes. A PAYG payment Summary from the life insurance company stated that your client was paid an amount and an amount of tax was deducted. The payment from the life insurance company was for income protection payments that were in lieu of their self- employment income. Your client made superannuation contributions to a superannuation fund (the Fund) during the 20XX-YY income year. Your client is under 75 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 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 Subsection 995-1(1).

Reasons for decision: Summary: Your client is eligible to claim a deduction for personal superannuation contributions made in the 20XX-YY income year provided: (a) all the conditions for claiming the deductions will be satisfied; and (b) the deduction for the contributions for that income year does not add to or create a loss. | 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 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 made personal contributions to a complying superannuation fund (the Fund). Therefore, your client will satisfy this condition. | Detailed Reasoning - 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 Income tax: superannuation contributions. Relevantly, paragraphs 58 and 59 state that: 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. [emphasis added] 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' As reiterated in paragraph 58 of TR2010/1, where a person is not employed at any time during the year, they are not subject to the maximum earnings test. You have advised in your private ruling application that your client was not engaged in any activities in the 20XX-YY income year that would result in them being treated as an employee for the purposes of the Superannuation Guarantee (Administration) Act 1992 (SGAA 1992). Further, whilst your client was in receipt of income protection payments in the 20XX-YY income year, these payments were made to compensate your client for the loss of self-employment income. An income protection payment is not made in connection with an employee attending work or working during their ordinary hours of work. The employee is not remunerated for their labour or services. Your client did not physically carry out any obligations or duties of a job or work with respect to the income protection payments received and was therefore not engaged in employment activities. Accordingly, as your client did not engage in work or other employment activities that resulted in them being treated as an employee for the purposes of the SGAA 1992 they will not be subject to the maximum earning test under section 290-160 of the ITAA 1997. | 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. As your client was under age 75 during 20XX-YY income year when your client made the contributions to the Fund, your client will satisfy the age-related conditions. | Detailed Reasoning - Notice of intent to deduct conditions: Whilst your client will not be subject to the maximum earning test under section 290-160 of the ITAA 1997 and has satisfied the age-related requirement of section 290-165 of the ITAA 1997, the conditions in sections 290-155 and section 290-170 of the ITAA 1997 must also be satisfied for your client to claim a deduction in the 20XX-YY income year. 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 contribution is made. 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 your client's intention to claim a deduction in respect of the contribution, and your client 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 the notice to the fund trustee by the earlier of the date of your client's income tax return being lodged, 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 or the fund is a successor fund as defined in subsection 995-1(1) of the ITAA 1997; • 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. The notice of intent to deduct conditions under section 290-170 of the ITAA 1997 will be satisfied for the 20XX-YY income year provided your client lodges a valid notice of intent with the fund trustee before the earlier of: (a) your client's income tax return for the 20XX-YY income year is lodged; or (b) 30 June 2016; and (c) the trustee duly acknowledges your client's notice. | Detailed Reasoning - Deduction limited by amount specified in notice: 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. Provided the amount of the deduction your client will claim does not exceed the amount specified in your client's section 290-170 notice, your client will also satisfy this requirement. | Detailed Reasoning - Deduction limits: 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 years' tax losses and any deductions for farm management losses) from a taxpayer's assessable income. Therefore a deduction for personal superannuation contributions cannot add to or create a loss. Provided your client's deduction for the contributions will not add to or create a loss in the 20XX-YY income year, this requirement will be satisfied. | Detailed Reasoning - Conclusion: As your client will satisfy the required conditions in sections 290-155, 290-165 and 290-170 of the ITAA 1997 and was not required to satisfy section 290-160, your client will be entitled to claim a deduction for personal superannuation contributions they make in the 20XX-YY income year provided the deduction does not add to or create a tax loss in that income year.