Private ruling: Deduction for personal super contributions
Published: October 2013
Ruling period: 2012-13 income year
Date scheme commenced: 1 July 2012.

Ruling: Q1: Is the taxpayer eligible to claim a deduction under section 290-150 of the Income Tax Assessment Act 1997 (ITAA 1997) for personal superannuation contributions in the 2012-13 income year? | A1: No.

Relevant facts and circumstances: Your Client is a member of a Self Managed Super Fund ("The Fund"). During the 2012-13 financial year a contribution was made by your client into The Fund. Your client was previously employed prior to the 2012-13 financial year. Your client was diagnosed with a disorder due solely to work related events and formally entered ill health retirement some time ago and as a result their employment ceased. During the 2012-13 financial year your client received total pension payments from the previous employer in relation to their ill health retirement. Your client has lodged an Income Tax Return for the 2012-13 financial year. Your client provided The Fund with a notice of their intention to claim a deduction for personal contributions after the date of which they lodged an Income Tax Return for the 2012-13 financial 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. | Income Tax Assessment Act 1936 section 23AG | Superannuation Guarantee (Administration) Act 1992 section 12. | Superannuation Guarantee (Administration) Act 1992 section 27.

Reasons for decision: Summary: Your client is not eligible to claim a deduction for personal superannuation contributions in the 2012-13 income year. Although they have satisfied the 'maximum earnings test' they have not provided a valid notice of their intention to claim a deduction to the superannuation fund within the required timeframe. | Detailed Reasoning - Personal superannuation contributions made in the 2012-13 income year: 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 Income Tax Assessment Act 1997 (ITAA 1997), provided certain conditions are met. It is important to note, that the current test for the deductibility of personal superannuation contributions does not include the level of employer superannuation support a person receives or should have received. 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. One of those conditions is the 'maximum earnings' condition outlined in section 290-160 of the ITAA 1997, commonly known as the 'ten percent test'. | 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 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, the client: · Ceased employment when they entered ill health retirement prior to the 2012-13 financial year. · Received pension payments during the 2012-13 financial year in relation to their ill health retirement. Even though your client received pension payments during the 2012-13 financial year, because they are no longer employed they are not considered to be engaged in an "employment" activity and is not subject to the maximum earnings test under Section 290-160 of the ITAA 1997. | 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: o you are a member of the fund or the holder of the retirement savings account (RSA); o 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); o the trustee or RSA provider has not begun to pay a superannuation income stream based on the contribution; or · before the notice is given: o a contributions splitting application has not been made in relation to the contribution; and; o the trustee or RSA provider to which you made the application has not rejected the application. This condition will be satisfied if you give the trustee of the superannuation fund the required notice of intent to deduct and the trustee of the superannuation fund acknowledges that notice. Your client provided The Fund with a notice of their intention to claim a deduction for personal contributions. However, this was done after your client had already lodged an income tax return for the 2012-13 financial year. Because your client had already lodged an income tax return, they can no longer provide a valid notice in respect of contributions made in the 2012-13 income year after the date which they lodged their income tax return. Having failed to provide a valid notice within the required time frame, there is no need to examine whether the conditions of sections 290-155 and 290-165 of the ITAA 1997 would be satisfied, as your client must satisfy all the tests specified in section 290-150. | Detailed Reasoning - Conclusion:: Your client did not provide a valid notice under section 290-170 of the ITAA 1997 within the specified time frame. Consequently, your client is not eligible to claim a deduction under section 290-150 of the ITAA 1997 for personal superannuation contributions in the 2012-13 income year.