Private ruling: Deduction for personal superannuation contributions
Published: February 2012
Ruling period: Year ended 30 June 2011.
Date scheme commenced: 1 July 2010.

Ruling: Q1: Can your client claim a deduction for personal superannuation contributions made in the 2010-11 income year under section 290-150 of the Income Tax Assessment Act 1997 ? | A1: Yes.

Relevant facts and circumstances: Your client is over age 55 but under age 65. Several years ago your client was involved in a workplace accident. As a result of the accident your client suffers a medical condition and is confined to a wheelchair. Your client is unable to work either currently or in the future. Your client's employment with a previous employer ceased during the last quarter of the 1989-90 income year, and they commenced to receive workers' compensation benefits at this time. Your client received workers' compensation benefits during the 2010-11 income year from Workcover. A PAYG Payment Summary-individual non-business issued by Workcover for this income year in relation to these benefits discloses the gross payments made and the amounts withheld by Workcover for PAYG purposes during the income year. You have advised that Workcover do not regard the income paid to your client as being attributable to employment activities. You have also advised that Workcover does not treat your client as being an employee for superannuation guarantee purposes. A breakdown of your client's assessable income for the 2010-11 income year was provided. In addition to the payments received from Workcover, your client received interest and rent during this income year. Your client received no reportable fringe benefits in the 2010-11 income year. No reportable employer superannuation contributions were made for your client's benefit to a complying superannuation fund in this income year. During the 2010-11 income year your client made personal superannuation contributions to a complying self-managed superannuation fund (the fund). Your client made the contributions for the purpose of providing superannuation benefits for themselves. Your client intends to claim a deduction in respect of the contributions. You have advised that the deduction will not add to or create a loss in the 2010-11 income year. You have further advised that your client will provide a written notice of intent to the fund trustee, stating that they intend to claim the deduction in respect of these contributions. Your client is awaiting the outcome of the application before lodging the notice of intent with the fund trustee. You state that your client intends to lodge the notice of intent immediately after receiving a favourable response to the application, and within the required timeframes specified in section 290-170 of the Income Tax Assessment Act 1997 . Your client anticipates receiving an immediate acknowledgment of the notice of intent from the fund trustee. Your client has yet to lodge an income tax return for the 2010-11 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 292-15, | Income Tax Assessment Act 1997 Subsection 292-25(2), | Income Tax (Transitional Provisions) Act 1997 Subsection 292-20(2), | Superannuation (Excess Concessional Contributions Tax) Act 2007 ) Section 4, and | Superannuation (Excess Concessional Contributions Tax) Act 2007 ) Section 5.

Reasons for decision: Summary: The maximum earnings as an employee condition does not apply to your client in the 2010-11 income year. Your client was not engaged in any employment activity during this income year that would result in them being considered as an employee for the purposes of the Superannuation Guarantee legislation. Your client will be eligible to claim a deduction in respect of the total personal contributions they made during this income year, provided: o your client gives the trustee of the superannuation fund the required notice of intent to deduct; and o the trustee of the superannuation fund acknowledges that notice; and o the deduction does not add to or create a loss. o The deduction claimed is a concessional contribution in this income year. | Detailed Reasoning - Detailed reasoning: Deduction for 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 the contribution is made. The superannuation fund into which your client made the contributions is a complying superannuation fund. 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 2010-11 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. In TR 2010/1, the Commissioner discusses the operation of the maximum earnings as employee condition for persons who are receiving workers' compensation payments. At paragraphs 246 to 248, the Commissioner states: 246. Those persons who are engaged in an 'employment' activity in the income year in which they make a contribution need to meet the maximum earnings test. 247. Those persons who have not engaged in an 'employment' activity in the income year in which they make a contribution are not subject to this earnings test. For example, a person who, although no longer employed, is receiving workers' compensation payments, is not subject to the maximum earnings test. 248. 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. The employment activity condition outlined in subsection 290-160(1) of the ITAA 1997 has two parts that must be satisfied, namely: o the taxpayer must engage in any of the employment activities specified in paragraph 290-160(1)(a); and o as a result be treated as an employee for the purposes of the SGAA, as specified in paragraph 290-160(1)(b). The critical factor at issue is whether your client was engaged in any employment activity during the 2010-11 income year and, if so, did the income from that activity exceed 10% of your client's total assessable income, total reportable fringe benefits (if any) and reportable employer superannuation contributions. From the facts provided, it is evident that your client was not engaged in any employment activity during this income year. Further, the entity making the workers' compensation payments to your client did not regard these payments as being attributable to an employment activity. Consequently, section 290-160 of the ITAA 1997 does not apply to your client in the 2010-11 income year. | Detailed Reasoning - Age-related condition: 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 65 when the contributions were made, your client satisfies this condition. | Detailed Reasoning - Notice of intent to deduct conditions: Section 290-170 of the ITAA 1997 requires that your client provides a valid notice of his intention to claim the deduction to the trustee of the complying superannuation fund. The notice must be given before the earlier of: o the date your client lodges their income tax return for the income year in which the contribution was made; or o the end of the income year following the year in which the contribution was made. In addition, your client must also have been given an acknowledgement of the notice by the trustee of the superannuation fund. 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: o a contributions splitting application has not been made in relation to the contribution; and; o the fund trustee has not rejected the application. Your client is awaiting the outcome of the private ruling application before lodging a notice of intent under section 290-170 of the ITAA 1997 with the fund trustee. Further, your client has yet to lodge an income tax return for the 2010-11 income year. Provided your client lodges a valid notice of intent with the fund trustee before the earlier of: o the lodgment of their income tax return for the 2010-11 income year; or o 30 June 2012; o and the trustee duly acknowledges the 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: 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. Your client intends to claim a deduction in respect of the contributions they made to the fund during the 2010-11 income year. Provided the deduction does not exceed the deductible amount your client specifies in the 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. You have advised that the deduction for these contributions will not add to or create a loss in the 2010-11 income year. | Detailed Reasoning - Conclusion: As your client 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 your client can claim a deduction in respect of the contributions your client made to the fund during the 2010-11 income year. | Detailed Reasoning - Concessional contributions: Concessional contributions made to superannuation funds in the 2010-11 income year are subject to an annual cap of $25,000. Concessional contributions include employer contributions (including contributions made under a salary sacrifice arrangement) and personal contributions claimed as a tax deduction by a person. A person will be taxed on concessional contributions over the cap at a rate of 31.5% (section 292-15 of the ITAA 1997 and sections 4 and 5 of the Superannuation (Excess Concessional Contributions Tax) Act 2007 ). However, between 1 July 2007 and 30 June 2012, a transitional concessional contributions cap will apply. The transitional concessional contributions cap is $50,000 for the 2010-11 income year for people aged 50 or over (subsection 292-20(2) of the Income Tax (Transitional Provisions) Act 1997) . As your client will be over age 50 at the end of the 2010-11 income year, the transitional concessional contributions cap of $50,000 will apply.

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