Private ruling: Deduction for Personal Superannuation Contributions
Published: May 2012
Ruling period: Year ending 30 June 2012.
Date scheme commenced: 1 July 2011.

Ruling: Q1: Are you entitled to claim a deduction for personal superannuation contributions to be made in the 2011-12 income year under section 290-150 of the Income Tax Assessment Act 1997 ? | A1: Yes.

Relevant facts and circumstances: You are under age 55. You are a self-employed sole trader. You are a member of a complying superannuation fund (the fund). You plan to make personal contributions to the fund during the 2011-12 income year. You confirm that the contributions will be made for the purpose of providing superannuation benefits to you or your dependants if you die before or after becoming entitled to the benefits. You have advised that a deduction for the proposed contribution will not add to or create a loss for your client in the 2011-12 income year. You have also advised the amount of the deduction your client will claim for the contribution You have advised the amount of the deduction you intend to claim for the proposed contributions in the 2011-12 income year. In addition, you confirm that the proposed deduction will not add to or create a loss in this income year. You confirm that you will provide the fund trustee with a written notice stating that you intend to claim the deduction in respect of these contributions. You also confirm that you expect to receive an acknowledgement by the fund trustee of this notice, prior to you lodging your income tax return for the 2011-12 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 Section 292-25, | Income Tax Assessment Act 1997 Subsection 292-25(2), | Income Tax Assessment Act 1997 Paragraph 292-25(2)(c), | Income Tax Assessment Act 1997 Subparagraph 292-25(2)(c)(iii), | Income Tax Assessment Act 1997 Subparagraph 292-90(2)(c)(iv), | Income Tax Assessment Act 1997 Subsection 995-1(1) and | Income Tax Assessment Regulations 1997 Regulation 995-1.04.

Reasons for decision: Summary: You are eligible to claim a deduction for the entire amount of the personal contributions you propose to make in the 2011-12 income year, provided: · you give the trustee of the superannuation fund the required notice of intent to deduct within the timeframes specified in the legislation; and · the trustee of the superannuation fund acknowledges that notice; and · the deduction does not add to or create a loss. | Detailed Reasoning - Personal superannuation contributions made in the 2011-12 income year: 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). You plan to make your personal contributions to a complying superannuation fund (the fund) during the 2011-12 income year. You intend to make these contributions for the purpose of providing superannuation benefits for yourself or for your dependants if you die before or after becoming entitled to the benefits. 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, that fund must be a complying superannuation fund for the income year in which you made the contribution. As noted above, you propose to make your personal contributions to a complying superannuation fund. Therefore in this instance, you will satisfy 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 2011-12 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'. The critical factor at issue is whether you are engaged in any employment activity during the 2011-12 income year and, if so, does the income from that activity exceed 10% of your total assessable income, total reportable fringe benefits (if any) and reportable employer superannuation contributions. 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 you: The employment activity condition outlined in subsection 290-160(1) of the ITAA 1997 has two parts that must be satisfied, namely: · the taxpayer must engage in any of the employment activities specified in paragraph 290-160(1)(a); 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. You are a self-employed sole trader. As such, the maximum earnings as an employee condition does not apply to you in the 2011-12 income year. It is evident from the facts provided that you are not engaged in any employment activity during this income year. Consequently, section 290-160 of the ITAA 1997 does not apply to you 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. As you will be under age 75 at all times during the 2011-12 income year, you will satisfy the age-related conditions. | Detailed Reasoning - Notice of intent to deduct conditions: Section 290-170 of the ITAA 1997 requires you to provide a valid notice of your intention to claim the deduction to the trustee of the complying superannuation fund (the fund trustee). The notice must be given before the earlier of: · the date you lodge your income tax return for the income year in which the contribution was made; or · the end of the income year following the year in which the contribution was made. In addition, you must also have been given an acknowledgement of the notice by the fund trustee. The fund trustee is required to acknowledge your 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: o you are a member of the fund; o 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); o the fund trustee has not begun to pay a superannuation income stream based on the contribution; or · before the notice is given: o a contributions splitting application has not been made in relation to the contribution; and; o the fund trustee has not rejected the application. You have confirmed that you will provide the fund trustee with a valid notice of your intention to claim the deduction in respect of the proposed contributions. You also confirm that you expect to receive an acknowledgement by the fund trustee of your notice, prior to you lodging your tax return for the 2011-12 income year. Provided you lodge a valid notice of intent with the fund trustee before the earlier of : · the lodgement of your tax return for the 2011-12 income year; or · 30 June 2013, and the fund trustee duly acknowledges your notice, then the notice of intent to deduct conditions under section 290-170 of the ITAA 1997 will be satisfied. | Detailed Reasoning - Deduction limited by amount specified in notice: Subsection 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. You have advised the amount of the deduction you intend to claim for the proposed contributions. Provided this amount does not exceed the deductible amount you specify in your section 290-170 notice, you 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. You have confirmed that the deduction for the proposed contributions will not add to or create a loss in the 2011-12 income year. | Detailed Reasoning - Conclusion: As you will satisfy the required conditions under sections 290-155 and 290-165 of the ITAA 1997 and, provided the conditions under section 290-170 are satisfied, then you are entitled to claim a deduction in the 2011-12 income year for the entire amount of the contributions you intend to make to the fund in this income year. | Detailed Reasoning - Concessional contributions: Concessional contributions made to complying superannuation funds are subject to an annual cap. For the 2011-12 financial year the annual concessional contributions cap is $25,000, for people aged under 50 years of age during this financial year. The amount of a person's concessional contributions for a financial year is determined under section 292-25 of the ITAA 1997. Subsection 292-25(2) of the ITAA 1997 provides that unless specifically excluded, they include contributions made to a complying superannuation fund by or for a person in that year, which are included in the fund's assessable income. Most commonly, these contributions include employer contributions (including contributions made under a salary sacrifice arrangement) and personal contributions claimed as a tax deduction by a person. | Detailed Reasoning - Contributions made to a constitutionally protected fund: Most contributions that are not assessable income of the fund are not concessional contributions. Paragraph 292-25(2)(c) of the ITAA 1997 sets out amounts that are not included in a person's concessional contributions for a financial year, even though these contributions might be included in the fund's assessable income for that year. Subparagraph 292-25(2)(c)(iii) of the ITAA 1997 excludes any contributions made to a constitutionally protected fund (CPF) from being concessional contributions. This is because CPFs do not pay income tax on the contributions or earnings they receive. It is noted that the fund is a CPF. Therefore, subparagraph 292-25(2)(c)(iii) of the ITAA 1997 operates to exclude the contributions you propose to make during the 2011-12 financial year from being concessional contributions in this financial year. Further, subparagraph 292-90(2)(c)(iv) of the ITAA 1997 operates to exclude these contributions from being non-concessional contributions in this financial year As a result, these contributions will not be counted towards either your concessional contributions cap or your non-concessional contributions cap for this financial year.

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