Private ruling: Conditions for deducting personal contributions
Published: January 2014
Ruling period: Income year ending 30 June 2014
Date scheme commenced: During the income year ending 30 June 2014

Ruling: Q1: Are income protection benefit payments attributable to the taxpayer's employment activities for the purposes of section 290-160 of the Income Tax Assessment Act 1997 (ITAA 1997)? | A1: Yes

Relevant facts and circumstances: 1. The Taxpayer was employed by an industry body (the Employer). 2. While in employment with the Employer, the Taxpayer purchased an income protection policy (the Policy). 3. The Policy premiums were paid by the Employer through a salary sacrifice arrangement. 4. In mid 2013, the Taxpayer commenced to receive monthly income replacement payments. 5. Subsequently, the Taxpayer's employment with the Employer was terminated due to illness. 6. No Policy premiums were paid by the Employer since the termination of the Taxpayer's employment. 7. No Policy premiums were paid by the Taxpayer since the termination of the Taxpayer's employment with the Employer.

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 290-160 | Income Tax Assessment Act 1997 Subsection 290-160(1) | Income Tax Assessment Act 1997 Subsection 290-160(2)

Reasons for decision: Summary: 1. In accordance with section 290-150 of the ITAA 1997, a person who makes contributions to a superannuation fund for the purpose of providing superannuation benefits for themselves, can claim the deduction for contributions in the income year the contributions are made. However, to deduct the contributions, the person must satisfy a number of conditions 1 , including the maximum earnings as employee condition (where applicable) set in section 290-160 of the ITAA 1997. 2. Subsection 290-160(1) of the ITAA 1997 states that section 290-160 of the ITAA 1997 applies if in the income year in which a person makes the contribution, the person engages in any of the following activities: (i) holding an office or appointment; (ii) performing functions or duties; (iii) engaging in work; (iv) doing acts or things; and the activities result in the person 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). 3. In accordance with subsection 290-160(2) of the ITAA 1997, where above is the case, to deduct the contribution, less than 10% of the total of the following must be attributable to a person's 'employment' activities: (a) the person's assessable income for the income year; (b) the person's reportable fringe benefits total for the income year; (c) the total of the person's reportable employer superannuation contributions for the income year. 4. The Commissioner has issued Taxation Ruling TR 2010/1 in which he expresses his view on the application of subsection 290-160(2) of the ITAA 1997 and, at paragraph 63, states: Assessable income, reportable fringe benefits total and reportable employer superannuation contributions are to be given their statutory meaning. In this regard, a person's assessable income is usually a gross amount worked out ignoring expenses incurred in gaining the income. However, in some cases, such as partnership or trust income, the amount included in a person's assessable income is their share of the net partnership income or net trust income. 5. Paragraph 64 of TR 2010/1 states that all amounts that are ' attributable ' to the 'employment' activity are taken into account as assessable income for the purposes of subsection 290-160(2) of the ITAA 1997. As far as relevant, these include: § workers' compensation and like payments made because of injury or illness received by a person while holding the employment, office or appointment the performance of which gave rise to the entitlement to the compensation payments. 6. In this case, the Taxpayer's employment was terminated during the 2013-14 income year, therefore the Taxpayer is considered to have been engaged in 'employment' activities during the 2013-14 income year. As such, the Taxpayer is required to meet the maximum earnings test to claim a deduction for personal superannuation contributions made in the 2013-14 income year. 7. Like workers' compensation payments, income protection payments are made to the Taxpayer to compensate the Taxpayer for the loss of employment income due to injury or illness. Therefore, income protection payments received by the Taxpayer while still employed by the Employer, that is, in respect of the period from the time the Taxpayer commenced to receive income replacement payments to the time the Taxpayer's employment with the Employer was terminated are attributable to the Taxpayer's employment activities in the 2013-14 income year. 1 Subsection 290-150(2) of the ITAA 1997.