Private ruling: Deductibility of personal superannuation contributions
Published: September 2011
Ruling period: Year ended 30 June 2010
Date scheme commenced: 1 July 2009

Ruling: Q1: Is the bonus paid to your client in the 2009-10 income year, in respect of previous employment, included in her taxable income for the 2008-09 income year (the year that employment ceased)? | A1:  | Q2: Can your client claim a deduction for personal superannuation contributions in the 2009-10 income year? | A2: 

Relevant facts and circumstances: Your client ceased employment with a former Employer in the 2008-09 income year. In the 2009-10 income year your client received a payment (the payment) as shown in a PAYG payment summary from the former Employer. The payment your client received corresponds with an amount that was payable in the terms of your client's contract of employment with the former Employer. In addition to the payment, there is a statement which shows the former Employer made a compulsory superannuation guarantee payment arising from the payment in the 2009-10 income year. During the 2009-10 income year your client made a superannuation contribution to a complying superannuation fund (the Fund). The contribution was made to provide superannuation benefits for your client's retirement or in the event of death to your client's dependants. Your client provided the trustees of the Fund (the Trustees) with a written notice that your client intends to claim a deduction in relation to the contribution in the 2009-10 income year. The Trustees have provided your client with a notice acknowledging your client's intention to claim a deduction in relation to the contribution. Details of your client's total assessable income for the 2009-10 income year and its composition have been provided. This includes income relating to a short period of employment undertaken with an employer. The deduction in relation to the contribution will not add to or create a loss in the 2009-10 income year. Your client's is less that 65 years of age.

Relevant legislative provisions: Income Tax Assessment Act 1997 Paragraph 26-55(1)(d). | Income Tax Assessment Act 1997 Section 290-150. | Income Tax Assessment Act 1997 Section 290-160. | Income Tax Assessment Act 1997 Section 290-165. | Income Tax Assessment Act 1997 Section 290-170.

Reasons for decision: Summary: The payment your client received in relation to the payment from the former Employer is to be included in the income year in which the payment was received, that is, the 2009-10 income year. Further, your client is entitled to claim a deduction in your client's tax return for the 2009-10 income year for personal contributions which your client made in that year to a complying superannuation fund. | Detailed Reasoning - Personal deductible superannuation contributions made in the 2009-10 income year.: From 1 July 2007 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, the conditions in sections 290-155, 290-160, 290-165 and 290-170 of the ITAA 1997 must also be satisfied for the person to claim the deduction. | 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 a personal superannuation contribution to the Fund which is a complying superannuation fund in the 2009-10 income year. Therefore this requirement is satisfied. | Detailed Reasoning - Maximum earnings as an employee condition:: Section 290-160 of the ITAA 1997 requires that if, in the income year in which the contribution is made, a person is engaged in any of the following activities: · 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) - assuming that subsection 12(11) of the SGAA had not been enacted, then the total of that persons assessable income and reportable fringe benefits attributable to the activities must be less than ten percent of their total assessable income and reportable fringe benefits for the income year. Section 12 of the SGAA states that the terms employee and employer have their ordinary meaning for the purposes of the SGAA. However, it then states that subsections 12(2) to 12(11) expand the meaning of those terms and make particular provision to avoid doubt as to the status of certain persons. In your client's case the facts show your client was an employee for the purpose of the SGAA in the 2009-10 income year in view of the employment your client held with an employer for a short period of time in that income year. This means that in order to satisfy the condition set out under section 290-160 of the ITAA 1997, your client's total assessable income and reportable fringe benefits attributable to her duties/activities as an employee in the income year must be less than ten percent of your client's total assessable income and reportable fringe benefits for the 2009-10 income year. The facts provided show your client's total assessable income for the 2009-10 income year and its composition. In respect of the bonus payment (the payment) from your client's former Employer it is noted that the employment contract indicates this was payable to your client in the 2008-09 income year. As the payment was actually received in the 2009-10 income year and, there is nothing to indicate an accruals or earnings method applies in the calculation of your client's income for tax purposes, the payment must be returned as income in the year in which the payment was received. Accordingly, the payment is included as assessable income in 2009-10 income year and forms part of the total assessable income for that year. In view of the above the issues which require consideration are: (a) the amount of income attributable to employment activities your client was 'engaged' in the 2009-10 income year; and (b) whether that amount of income is less that ten percent of your client's total assessable income for the 2009-10 income year. Notwithstanding the fact that the payment made by your client's former Employer arises from employment income, the facts show that your client ceased employment with that Employer in the 2008-09 income year. Therefore, it is evident that your client was not engaged in activities relating to the former Employer in the 2009-10 income year. Accordingly, for the purposes of section 290-160 of the ITAA 1997, it is considered that the only income attributable to your client being engaged in employment activities in the 2009-10 income year is the income from the employment your client held with an employer for a short period of time in that income year. As the income your client received from engagement in employment activities in the 2009-10 income year was less than ten percent of your client's total assessable income for that year, it follows that the condition under section 290-160 of the ITAA 1997 has been satisfied. | 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 is under age 75, the contributions made by your client satisfies this requirement. | 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. The notice must be given before the earlier of: · the date the contributor lodges his or her 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, the contributor must also have been given an acknowledgement of the notice by the trustee of the superannuation fund. In your client's case section 290-170 of the ITAA 1997 has been satisfied as your client has provided the Fund's trustees with notification of an intention to claim a deduction and the Trustee's have provided your client with a notice of acknowledgement. | Detailed Reasoning - Deduction limits:: From 1 July 2007 the previous age based limits on deductions for personal superannuation contributions have been abolished. As a result a person can now claim a full deduction for the amount of the contribution made. However, 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 year's tax losses and any deductions for farm management losses) from a taxpayer's assessable income. Thus a deduction for personal superannuation contributions cannot add to or create a loss. | Detailed Reasoning - Conclusion:: Based on the facts provided your client satisfies all of the requirements to claim a deduction under section 290-150 of the ITAA 1997 for personal superannuation contributions made in the 2009-10 income year.

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