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

Ruling: Q1: 1. Do you need to satisfy the maximum earnings as an employee condition under subsection 290-160 of the Income Tax Assessment Act 1997 (ITAA 1997) for the 2011-12 income year? 2. Will the superannuation contributions be deductible under section 290-150 of the ITAA 1997 for the 2011-12 income year? | A1: 1. Yes. 2. No.

Relevant facts and circumstances: You are an Australian resident for taxation purposes. You wish to claim a deduction for the personal superannuation contributions you are intending to make during the 2011-12 income year. You work overseas in a foreign country for a non resident company (the Company). The Contract for Services (the contract) between the Company and yourself (the Contractor) outlines the following: · You are to provide services on a project (the Project). · The Project has a completion date which is subject to extension. · You are paid a rate of AU$X per day worked. · You are reimbursed for certain business trips and travel costs · You are reimbursed for documented costs of Malaria medications. · The Company provides you with Healthcare Insurance for the period of your employment. · The Company provides you with emergency medical insurance whilst you are outside your country of origin during your employment period. · Your contract will be terminated if you have breached your obligations or you fail to perform your services as required in the Contract. · When the project is complete and certain conditions are met, you will be paid an assignment completion bonus. · All costs associated with obtaining a medical examination and the required documents are borne by you. The following was taken from the contract: While contractor shall control the detail, manner and method of performing the services, it is understood that all such services are subject to client review. You have stated you are not entitled to benefits such as leave or superannuation. You have stated you do not have authority to delegate work to others. You have stated that your contract does not specify completion of a specific work or outcome and that your work is to provide technical support to the project. You have stated you do not have to carry your own insurances. You have been in contact with the Company's foreign office and they have stated the following in regards to your position with them: · Contractor has a 'Contract for Services' so he would be classed as an independent contractor rather than an employee. You have provided an estimate of income for the 2011-12 income year which are as follows (in Australian dollars): · Income from the STS (London) Limited: $Y · Other investment income: $Z

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 Subsection 290-150(3). | 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. | Income Tax Assessment Act 1997 Subsection 290-170(1). | Income Tax Assessment Act 1997 Subsection 290-170(3). | Income Tax Assessment Act 1997 Section 292-15. | Superannuation Guarantee (Administration) Act 1992 Section 12 | Superannuation Guarantee (Administration) Act 1992 Subsection 12(3) | Superannuation Guarantee (Administration) Act 1992 Subsection 12(11)

Reasons for decision: Summary: You are currently engaged in activities that result in you being considered an employee for the purposes of the Superannuation Guarantee (Administration) Act 1992 . 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 nominated superannuation fund as not all of the conditions for deductibility were met for the 2011-12 income year. | Detailed Reasoning - Deduction for personal deductible 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 (or their dependants after their death) 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. According to the facts, the conditions in section 290-160 have not been met. This will be discussed in further detail below. | 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). Under subsection 12(1) of the SGAA, if a person is an employee at common law, that person is an employee under the SGAA. Where a common law employment relationship is not established, subsection 12(3) of the SGAA extents the definition to classify as an employee a person who works under contract that is wholly or principally for the labour of the person. Whether a person is an employee is determined by examining the terms and circumstances of the contract, referring to the key indicators expressed in the relevant case law and examining a number of factors within the context of the relationship between the parties. No one indicator, of itself, is determinative and therefore, the totality of the relationship is considered. Superannuation Guarantee Ruling SGR 2005/1 outlines the major indicators of a common law employment relationship to be: · Control. · Integration. · Results. · Delegation. · Risk. · Provision of tools and equipment and payment of business expenses. · Control Paragraph 33 of SGR 2005/1 states that a common law employee is told not only what work is to be done, but how and where it is to be done. It refers to the following statement made by Justice Dixon of the Full High Court in Humberstone v. Northern Timber Mills (1949) 79 CLR 389; (1949) 23 ALJ 584; [1950] VLR 44; [1949] ALR 985 : The question is not whether in practice the work was in fact done subject to a direction and control exercised by an actual supervision or whether an actual supervision was possible but whether ultimate authority over the man in the performance of his work resided in the employer so that he was subject to the latter's order and directions. In review of the contract provided by you, it appears you had significant control over the manner of performing your work. This is supported with reference to the contract where it states the 'contractor shall control the detail, manner and method of performing the services.' Whilst the contract indicates the services performed by you are to be approved by the Company, according to paragraph 35 of SGR 2005/1, this does not necessarily imply an employment relationship as a high degree of direction and control is not uncommon in contracts for services. | Detailed Reasoning - Integration: Paragraph 39 of SGR 2005/1 distinguishes between an employee and an independent contractor by identifying the difference between a person serving their employer within their employer's business and a person who is carrying on a trade or business of their own. Further, reference is made to the Full High Court decision in Hollis v. Vabu Pty Ltd [2001] HCA 44; (2001) 106 IR 80; (2001) 75 ALJR 1356; (2001) 181 ALR 263; (2001) 2001 ATC 4508; (2001) 33 MVR 399; (2001) 47 ATR 559; [2001] Aust Torts Reports 81-615; (2001) 50 AILR 4-476; (2001) 207 CLR 21 where the workers were found to be operating within their employer's business as they were not running their own business, nor did they have independence in the conduct of their operations. There is no material evidence to suggest that you were integrated into the business. Rather, you are referred to as 'the Contractor' throughout the entirely of the contract and have been classed as an independent contractor by the Company's foreign office. As such the true nature of the integration indicator can be determined by acknowledging the intensions of both parties. In this case, it appears the Company had no intention of integrating you into their business. | Detailed Reasoning - Results: Where the nature of the contract is for the worker to produce a given result, there is a strong indicator that they are a contractor. Paragraph 42 of SGR 2005/1 quotes Justice Sheller of the NSW Court of Appeals in World Book (Aust) Pty Ltd v. Federal Commissioner of Taxation (1992) 27 NSWLR 377; (1992) 46 IR 1; (1992) 108 ALR 510; (1992) 23 ATR 412; (1992) 92 ATC 4327 ( World Book ): Undertaking the production for a given result has been considered to be a mark, if not the mark, of an independent contractor. Paragraph 43 goes on to state: The 'production of a given result' means the performance of a service by a person who is free to employ their own means (such as third party labour, plant and equipment) to achieve the contractually specified outcome. Satisfactory completion of the specified service is the 'result' for which the parties have bargained. The consideration is often a fixed sum on completion of the particular job as opposed to an amount paid by reference to hours worked. If remuneration is payable when, and only when, the contractual conditions have been fulfilled the remuneration is usually made for producing a given result. According to the facts, whilst you appeared to have a degree of flexibility in undertaking your services and completing your assigned work on the Project, your contract does not specify completion of a specific work or outcome and therefore a 'result'. Rather, the facts state that your work is to provide ongoing support to the project which could indicate that you were engaged wholly or principally for your labour. There is also no evidence to suggest that you are free to employ your own means to provide your services, for example, third party labour. Further, the facts state that you are paid a rate of AU$X per day worked. Therefore your remuneration was not payable when, and only when, the contractual conditions have been fulfilled which indicates you were not renumerated for producing a given result. Consequently, this factor indicates an employee-employer relationship exists. | Detailed Reasoning - Delegation: Paragraph 48 of SGR 2005/1 states that if a person is contractually required to personally perform the work, this is an indication that the person is an employee. If an employee has unlimited power to delegate the work to others (with or without approval or consent of the principal), this is a strong indication that the person is being engaged as an independent contractor. The facts state that you do not have authority to delegate or subcontract work to others. This suggests that you are contractually required to personally perform the work. Consequently, this factor indicates an employee-employer relationship exists. | Detailed Reasoning - Risk: Paragraph 51 of SGR 2005/1 states that where a worker bears little or no risk of the costs arising out of injury or defect in carrying out their work, they are more likely to be an employee. An independent contractor often carries their own insurance and indemnity policies. According to the facts, you do not, nor are required to, carry your own insurances. Rather, you are provided with health care insurance and emergency medical cover during your employment period. Whilst the costs arising from obtaining a medical examination and the required documents are borne by you, the above indicates you bear little or no risk of the costs arising out of injury or defect in carrying out your work. This suggests an employee-employer relationship exists. | Detailed Reasoning - Provision of tools/equipment and payment of business expenses: Paragraph 52 of SGR 2005/1 states that the provision of assets, equipment and tools by an individual and the incurring of expenses and other overheads is an indicator that the individual is an independent contractor. 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. The facts state that you are reimbursed for certain business expenses including certain business trips, other travel costs and Malaria medications. The above could suggest an employee-employer relationship exists. | Detailed Reasoning - Other indicators: Other indicators of whether an employment relationship exists have been variously stated and have been added to from time to time. These include the right to suspend or dismiss the person engaged, the right to exclusive services of the person engaged, compulsory uniforms, provision of benefits such as annual, sick and long service leave and the provisions of other benefits prescribed under an award for employees. According to the facts, your contract does not contain leave provisions. Further, your contract can be terminated by the Company, only when you have breached your obligations or you fail to perform your services as required in the Contract. Both these indicators suggest you are engaged as an independent contractor. Through the analysis of various indicators, SGR 2005/1 identifies when an individual is considered to be an employee under subsection 12(1) of the SGAA. In this case, the indicators of control, integration, results contract, delegation, risk and the provision of tools/equipment and payment of business expenses have been considered. Whilst the control, integration and other indicators suggest you were engaged as an independent contractor, the provision of tools/equipment and payment of business expenses, results and delegation indicators suggested you are contracted as an employee. As we have some contradicting indicator results, we will now consider the extended definition of an employee. As stated previously subsection 12(3) of the SGAA extents the definition to classify as an employee a person who works under contract that is wholly or principally for the labour of the person. This was to take into account some independent contractors who principally provide their own labour to meet obligations under a contract and to include a person who may not be an employee in the normal sense but who is in fact not very distinguishable from an employee. 'Labour' includes mental and artistic effort as well as physical toil. The words 'wholly or principally' are used to limit or restrict the types of contracts that will be covered by subsection 12(3) of the SGAA. Paragraph 72 of SGR 2005/1 states that from the decisions reached in Neale (Deputy Commissioner of Taxation) v. Atlas Products (Vic) Pty Ltd (1955) 94 CLR 419; (1955) 29 ALJ 28; (1955) 10 ATD 460; [1955] ALR 426; [1955] HCA 18 and World Book , it is clear that a person who has 'a right to delegate work' (whether or not that right is exercised) does not work under a contract wholly or principally for his or her labour and that a contract for labour must be distinguished from 'a contract to produce a given result'. The ATO view is that some contracts for services will be wholly or principally for the labour of the individual contracted even though the individual is not a common law employee. Paragraph 78 of SGR 2005/1 goes on to state: Where the terms of the contract in light of the subsequent conduct of the parties indicates 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 subsection 12(3). During the 'results' and 'delegation' indicator analysis, it was established that your contract does not specify completion of a specific work or outcome. Therefore, you are not contracted to produce a given result, nor are you remunerated on that basis. It was also established that you are required to perform the work personally as you have no right of delegation. As such, whilst your contract is detailed as a 'Contract for Services' and that you are referred to as an independent contractor throughout, the substance of the contract is one that is wholly or principally for your labour. Based on the above analysis, you are considered an employee under the extended definition pursuant to subsection 12(3) of the SGAA. In the application of the maximum earnings test, the relevant 'employment' activity need not be an activity in Australia. The 'employment' income of an Australian resident employed overseas by a foreign employer will be counted in the maximum earnings test if the income is assessable income. You have provided your estimated assessable income for the 2011-12 income year. As the income from your employment activity represents more than 10% of your total assessable income, RFB and RESC for that year, the maximum earnings as an employee condition is not satisfied.

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