Private ruling: Personal deductible contributions
Published: September 2014
Ruling period: Year ended 30 June 2012
Date scheme commenced: 1 July 20

Ruling: Q1: Is your client entitled to claim a deduction under section 295-150 of the Income Tax Assessment Act 1997 (ITAA 1997) in respect of personal superannuation contributions made in the 2011-12 income year? | A1: Yes.

Relevant facts and circumstances: Your client was over the age of 18 and less than 75 years old in the relevant income year. You client made personal contributions of $X into a complying superannuation fund (the Fund) in the relevant income year. A valid notice of intent to claim a deduction was given to the Fund (within the prescribed time constraints) and acknowledged by the Fund. You contend in your private ruling application that your client: suffered a severe injury; was assessed by the life insurance company as unable to fulfil their normal work duties and therefore qualified for payments under an income protection policy. Your client did not claim a deduction for personal superannuation contributions made to the Fund of $X for the relevant income year.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 290-150. | Income Tax Assessment Act 1997 section 290-155. | Income Tax Assessment Act 1997 section 290-160. | Income Tax Assessment Act 1997 section 290-165. | Income Tax Assessment Act 1997 section 290-170. | Superannuation Guarantee (Administration) Act 1992 section 12.

Reasons for decision: Summary: Based on the information provided, your client is entitled to a deduction for personal superannuation contributions made in the relevant income year, as they have satisfied the legislative requirements for claiming a deduction under section 290-150 of the ITAA 1997. | Detailed Reasoning - Detailed reasoning: An individual 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, provided certain conditions are met. 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 of the ITAA 1997 must all be satisfied before the person can claim a deduction for the contributions made in that income year. | 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. In this case, your client made personal superannuation contributions of $X to the Fund, which is a complying superannuation fund. The requirements of section 290-155 of the ITAA 1997 have therefore been satisfied. | Detailed Reasoning - Maximum earnings as an employee condition: Section 290-160 of the ITAA 1997 states: (1) 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). (2) To deduct the contribution, less than 10% of the total of the following must be attributable to the activities: (a) your assessable income for the income year; (b) your reportable fringe benefits total for the income year; (c) the total of your employer superannuation contributions for the income year. Under section 290-160 of the ITAA 1997, if an individual is engaged in an 'employment' activity in the income year in which the person makes a contribution; they will need to meet the maximum earnings test. 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 Superannuation Guarantee (Administration) Act 1992 (SGAA). Superannuation Guarantee Ruling 2005/1 entitled Superannuation guarantee: who is an employee? (SGR 2005/1) explains when an individual is considered to be an employee under section 12 of the SGAA. Paragraph 21 of SGR 2005/1 makes the following comments in relation to who is an 'employee': The SGAA defines 'employee' in section 12. The definition is both a clarifying and extending provision. Subsection 12(1) defines the term 'employee' as having its ordinary meaning - that is, its meaning under common law. If a worker is held to be an employee at common law, then they will be an employee under the SGAA... As noted previously, an employee has its ordinary meaning under common law. A person is engaged in an employment activity when they are physically carrying out the obligations and duties of the job or work and receive a payment in the form of salary or wages in return for labour or services. As stated in your private ruling application, your client: • suffered a severe injury and qualified for payments under an income protection policy, • did not work for salary and wages in the relevant income year. Based on the above, your client clearly did not engage in work or other activities that resulted in your client being rewarded for their services. In general, the income protection insurance payments paid to your client were made to compensate your client for loss of work. 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 and hence, was not paid any salary or wages in the relevant income year. Your client clearly did not engage in work or other employment activities that resulted in them being treated as an employee for the purposes of the SGAA. Accordingly, your client therefore does not have to satisfy the maximum earnings test under section 290-160 of the ITAA 1997. | Detailed Reasoning - Age-related conditions: Section 290-165 of the ITAA 1997 requires a taxpayer (over the age of 18) to have made the contribution before the day that is 28 days after the end of the month in which they turn 75 years of age. As your client was over the age of 18 and less than 75 years old in the relevant income year in which the contribution was made, the requirements of section 290-165 of the ITAA 1997 have been satisfied. | Detailed Reasoning - Notice of intent to deduct conditions: Section 290-170 of the ITAA 1997 requires a person to provide a valid notice of their intention to claim the deduction to the trustee of their superannuation fund. This 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 trustee of the superannuation fund. A notice will be valid as long as the following conditions apply: • the notice is in respect of the contributions • the notice is not for an amount covered by a previous notice • at the time when the notice is given: • you are a member of the fund or the holder of the retirement savings account (RSA) • the trustee or RSA provider 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 trustee or RSA provider 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 trustee or RSA provider to which you made the application has not rejected the application. Further, a notice must be given before the earlier of: • the day you lodged your income tax return for the relevant financial year, or • the 30 June of the income year following the relevant financial year. In this case, your client did give the trustee of the Fund a valid notice of their intent to deduct personal superannuation contributions. The notice of intent to deduct was given within the prescribed time constraints and the trustee of the Fund acknowledged that notice. The requirements of section 290-170 of the ITAA 1997 have been satisfied. As your client has satisfied the requirements of subsection 290-150(2) of the ITAA 1997, your client is entitled to claim a deduction under section 295-150 of the ITAA 1997 in respect of personal superannuation contributions made in the relevant income year.