Private ruling: Deductibility of personal superannuation contributions
Published: July 2012
Ruling period: Year ended 30 June 2011
Date scheme commenced: 1 July 2010

Ruling: Q1: 1. Are you an employee for superannuation guarantee purposes? 2. Are you entitled to claim a deduction personal superannuation contributions made in the relevant income year? | A1: 1. Yes 2. No

Relevant facts and circumstances: You are under 65 years of age. You are self-employed and have been for over ten years. You have a wide range of clients. No one organisation normally provides more than 20% of your income. In the relevant income year, you were asked by an Australian company to prepare a range of complex case studies for their business. You negotiated terms were based on a daily rate with the company. The company is a client of an employment agency (the employer). The company directed you to the employer. You entered into an Employment Agreement (the Agreement) with the employer to perform work for the company. The agreement between you and the employer outlines the following: · This Agreement is to be read in conjunction with the relevant legislation and standards. · The employer shall employ the employee to perform work for the employer's client. The employee will carry out such work as the employer or client may direct from time to time. · The employee may not without the prior written consent of the employer (which will not be unreasonably withheld) engage, whether directly or indirectly, in any business or employment which is similar or in any way connected to or competitive with the business of the client or which could or might reasonably be considered by others to impair the employee's ability to act at all times in the best interests of the employer or the client, out side the employee's hours of work for the employer. · The employee acknowledges that they are employed as a casual employee. · The employer will comply will all legal obligations with respect to the making of superannuation contributions for the benefit of the employee. Superannuation will be paid in addition to the employee's ordinary casual rate of pay. · The employer will reimburse to the employee all expenses properly incurred by the employee, in the proper performance of the employee's duties, provided that the expenses comply with the client's expense reimbursement policy (and are communicated to the employer and to the employee). · The employment period will be a maximum of X months notwithstanding that either party may terminate this agreement before the expiration of X months. This employment contract provided that your remuneration would be based on an 'all-up' daily rate for duration of the contract. As a result of this employment contract with the employer, you were paid the specified amount less PAYG withholding tax. The employer also made superannuation contributions to your nominated superannuation fund. On conclusion of your employment contract, the employer provided you with a PAYG payment summary for the relevant income year. You advised the following: · You were engaged on daily rates to accomplish a specific task. · You worked for yourself on this project from your home office. You allocated your time for the company and other work. You made trips overseas to conduct seminars during the time that you were engaged by the employer, and the company was aware of this, though you have not received written consent to vary the Agreement, and this was not considered necessary by either party. · You were paid at a daily rate inclusive of (without limitation) sick leave, annual leave, payment for public holidays, notice and severance. · The Agreement does state that "the employee will carry out such work as the employer or the client may direct from time to time". In practice, it was left completely to your discretion. The company's involvement was for a review of your work. · You had done work for other clients during the time that you were employed by the employer. · In respect of whether you have the right to refuse a particular task or job, you stated that you do not think that this applies to the work undertaken. You were only engaged to undertake a specific assignment, and the situation never arose. Had it arisen, it would have been necessary to renegotiate the contract. · You believe that if you had chosen to ask an associate to support you that would have been an arrangement between you and the associate. As far as the employer and the Bank was concerned, it was your responsibility to deliver the deliverables. · You bore the entire commercial responsibility for the job. · The Agreement does refer to the reimbursement of expenses properly incurred. You made no claim. You made a personal superannuation contribution to your complying superannuation fund (the Fund), during the relevant income year. You state that you intend to claim a tax deduction in the relevant income year. You confirm that a valid notice under section 290-170 of the ITAA 1997 has been lodged with the trustee of your superannuation fund and that the trustee of the Fund has acknowledged the notice. You confirmed that the contributions were made for the purpose of providing superannuation benefits for yourself. You provided a copy of your income tax return for the relevant income year. Detail of your assessable income comprised: · Salary & wages · Non-primary production income · Gross rent · Gross capital gains You lodged your income tax return for the relevant income year without claiming the personal contributions as a superannuation deduction.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 290-150. | Income Tax Assessment Act 1997 Subsection 290-150(1) | 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 Section 290-165. | Income Tax Assessment Act 1997 Section 290-170. | Income Tax Assessment Act 1997 Subsection 290-170(1). | Superannuation Guarantee (Administration) Act 1992 Subsection 12(1). | Superannuation Guarantee (Administration) Act 1992 Subsection 12(3).

Reasons for decision: Summary: You were engaged in activities that result in you being considered an employee for the purposes of the Superannuation Guarantee (Administration) Act 1992 for the relevant income year. Accordingly, the maximum earnings as an employee condition applies. You will not be eligible to claim a deduction for the personal superannuation contributions made to your superannuation fund as not all of the conditions for deductibility were met for the relevant income year. | Detailed Reasoning - Deduction for personal deductible superannuation contributions: A person must satisfy the conditions in subsection 290-150(1) of the Income Tax Assessment Act 1997 (ITAA 1997) before they can claim a deduction in respect of personal contributions made for the purpose of providing superannuation benefits for themselves, or their dependants after their death. However, subsection 290-150(2) of the ITAA 1997 provides all that the conditions in sections 290-155, 290-160, 290-165 and 290-170 of the ITAA 1997 must be satisfied before a person can claim a deduction for the contributions made in that income year. These conditions are examined below. | Detailed Reasoning - Complying superannuation fund condition:: Section 290-155 of the ITAA 1997 states that: If the contribution is made to a superannuation fund, it must be a complying superannuation fund for the income year of the fund in which you made the contribution. You indicated that you made personal contributions into your self managed superannuation fund (the Fund), a complying superannuation fund. Therefore, section 290-155 of the ITAA 1997 will be satisfied in this instance. | Detailed Reasoning - Maximum earnings as an employee condition:: The condition in section 290-160 of the ITAA 1997 requires that if a taxpayer is engaged in any activities that result in them being treated as an employee for the purposes of the Superannuation Guarantee (Administration) Act 1992 (SGAA), then less than 10% of the total of the following must be attributable to those activities: · their assessable income for the income year; · their reportable fringe benefits (RFB) for the income year; and · the total of their reportable employer superannuation contributions (RESC) for the income year. Subsection 290-160(1) 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 appointment; (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). Subsection 12(1) of the SGAA states that the terms employer and employee have their ordinary meaning. Subsections 12(2) to (11) of the SGAA expand the meaning of those terms and make provision to avoid doubt as to the status of certain persons. In particular, subsection 12(3) states: If a person works under a contract that is wholly or principally for the labour of the person, the person is an employee of the other party to the contract. Paragraph 11 of Superannuation Guarantee Ruling SGR 2005/1 makes the following comment regarding subsection 12(3) of the SGAA: For the purposes of subsection 12(3), where the terms of the contract in light of the subsequent conduct of the parties indicate that: · the individual is remunerated (either wholly or principally) for their personal labour and skills; · the individual must perform the contractual work personally (there is no right of delegation); and · the individual is not paid to achieve a result, the contract is considered to be wholly or principally for the labour of the individual engaged and he or she will be an employee under that subsection. Paragraph 24 of SGR 2005/1 states: The relationship between an employer and employee is a contractual one. It is often referred to as a contract of service . Such a relationship is typically contrasted with the principal/independent contractor relationship that is referred to as a contact for services . An independent contractor typically contracts to achieve a result whereas an employee contracts to provide their labour (typically to enable the employer to achieve a result). Based on the copy of the employment contract provided, you are acting within the role of an employee. The Commissioner, therefore, considers that the contract between you and the employer is one of a contract of service as opposed to a contract for service. In addition, you are working under a contract that is wholly or principally for your labour. To this end, by signing the contract you expressly agreed to the declaration, at a specific clause of the employment contract state that 'the employee acknowledges that he/she is employed as a casual employee'. An examination of the employment contract shows that you were being remunerated wholly for your personal labour and skills. You were paid on a daily rate for the work performed. On conclusion of your employment contract the employer issued a PAYG payment summary to you. The services you are providing under your contract primarily comprise a range of complex case studies for the employer's client. There is no indication that you were being paid to achieve a specific result, but rather provide advice on an ongoing basis during the period of your contract of employment with the employer. Further, the terms and conditions of the contract state that the employer will comply with all legal obligations with respect to the making of superannuation contributions for the benefit of the employee . The employer has provided superannuation contributions to you as an employee. In respect of expenses under the Agreement the employer will reimburse to the employee all expenses properly incurred by the employee, in the proper performance of the employee's duties, provide that the expenses comply with the client's expense reimbursement policy (and are communicated to the employer and to the employee). Paragraph 57 of SGR 2005/1 goes on to state that an employee, unlike a contractor, is often reimbursed for expenses incurred in the course of employment. In this respect it is noted that you have not claimed to have any of your expenses reimbursed. Taking all these factors into account, the Commissioner considers that you are working under a contract that is wholly or principally for your labour. Therefore, you are an employee for the purposes of the SGAA. This means that in order to satisfy the condition set out under section 290-160 of the ITAA 1997, your total assessable income and reportable fringe benefits attributable to your employment must be less than 10% of your total assessable income and reportable fringe benefits for the relevant income year. You have provided a copy of your relevant income year tax. Your income relating to employment with the employer is more than 10% of your total assessable income, reportable fringe benefits and reportable employer superannuation contributions for that income year. Consequently, section 290-160 of the ITAA 1997 will not be satisfied. As the condition in section 290-160 of the ITAA 1997 has not been satisfied, and all the conditions must be satisfied in order to claim a deduction, it is not necessary to determine whether the conditions of 290-165 and 290-170 of the ITAA 1997 have been satisfied. Therefore, you are not eligible to claim a deduction for any personal superannuation contributions made in the X income year. Please note that the Commissioner does not have the discretion to allow a deduction for personal superannuation contributions where one of the requirements has not been met. The Commissioner can only exercise a discretion when he is given that discretion in a law he administers. Also note that the fact that the employer made superannuation guarantee payments in respect of you does not automatically mean you are ineligible to claim a deduction for your personal superannuation contributions. You cannot rely on the rulings in the Register of private binding rulings in your tax affairs. You can only rely on a private ruling that we have given to you or to someone acting on your behalf. The Register of private binding rulings is a public record of private rulings issued by the ATO. The register is an historical record of rulings, and we do not update it to reflect changes in the law or our policies. The rulings in the register have been edited and may not contain all the factual details relevant to each decision. Do not use the register to predict ATO policy or decisions.

Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. If you have any concerns about this ruling you wish to discuss, you will find our contact details in the fact sheet.