Private ruling: Deductibility of personal superannuation contributions
Date of advice: 14 February 2017
Published: July 2017
Ruling period: Income year ending 30 June 201Y.
Date scheme commenced: 1 July 201X.

Ruling: Q1: Is the foreign income received by the Taxpayer 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: The Taxpayer is employed by a foreign entity (the Employer) based in an overseas country. The Taxpayer is an Australian resident for taxation purposes. Copies of the Taxpayer's 'Contract of Employment' and 'Letter of Assignment' have been provided which stipulate the terms and conditions of their employment. The Taxpayer receives periodic salary payments from the Employer. The Taxpayer receives no other employment income and their only other source of income for 201X-1Y is a small amount of bank interest. As the Employer is not an Australian resident employer and the Taxpayer is employed outside Australia, the Employer is not required to pay superannuation guarantee. The Taxpayer is a member of a compliant Australian superannuation fund (the Fund). The Taxpayer intends to make a personal superannuation contribution to the Fund in the 201 X-1Y income year.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 290-150. | Income Tax Assessment Act 1997 Section 290-160. | Income Tax Assessment Act 1997 Subsection 290-160(1). | Income Tax Assessment Act 1997 Paragraph 290-160(1)(a) | Income Tax Assessment Act 1997 Subsection 290-160(2).

Reasons for decision: Summary: The Taxpayer's foreign income is attributable to their employment activities for the 201X-1Y income year. As the employment income will exceed 10% of the total of the Taxpayer's assessable income, reportable fringe benefits total and reportable employer superannuation contributions, the Taxpayer will not be able to claim a deduction for personal contributions the Taxpayer intends to make to an Australian superannuation fund in the 201X-1Y income year. | Detailed Reasoning - Detailed reasoning: 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, including the maximum earnings as employee condition set in section 290-160. Subsection 290-160(1) of the ITAA 1997 applies the maximum earnings as an employee condition only if, in the income year in which the contribution is made, the person is engaged in any of the following activities (paragraph 290-160(1)(a) of the ITAA 1997): ● 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). For those persons who are engaged in any 'employment' activities, subsection 290-160(2) of the ITAA 1997 prescribes that a deduction for personal contributions can only be claimed where the sum of their: ● assessable income; ● reportable fringe benefits total; and ● reportable employer superannuation contributions; attributable to the 'employment' activities is less than 10% of the total of that person's assessable income, reportable fringe benefits total and reportable employer superannuation contributions. The term 'reportable employer superannuation contributions' includes salary sacrifice contributions made for the person's benefit in that income year. This calculation is referred to as the 'maximum earnings test'. In TR 2010/1, the Commissioner discusses the operation of the maximum earnings as employee condition. In paragraphs 57 and 58 of TR 2010/1 the Commissioner states: 57. Those persons who are engaged in an 'employment' activity in the income year in which they make a contribution need to meet an earnings test if they are to deduct their contribution. 58. Those persons who have not engaged in an 'employment' activity in the income year in which they make a contribution, such as persons who although receiving workers' compensation payments are not employed at any time during the year, are not subject to the maximum earnings test. Furthermore, the Commissioner has given examples of where a person will be engaged in an 'employment' activity without being physically engaged in the activity. At paragraph 60 of TR 2010/1 the Commissioner states: 60. Consequently, a person need not be physically engaged in the activity. For example: ● a common law employee or office holder will be engaged in the activity while they remain employed or hold the office; Therefore a person is engaged in an employment activity while they remain employed or hold the office and receive a payment in relation to that employment. In this case, the facts and documentation provided show the Taxpayer is an employee of the Employer and is engaged in employment related activities. Although the Taxpayer's the work is carried out outside of Australia, the Taxpayer is still considered to be engaged in work or other activities that result in the Taxpayer being treated as an employee for the purposes of the SGAA, regardless of whether the company is not required to pay superannuation guarantee. In accordance with paragraph 64 of TR 2010/1, 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. TR 2010/1 further states at paragraphs 65 and 66 that: 65. In the application of the maximum earnings test, the relevant 'employment' activity need not be an activity in Australia. For a non-resident, the income attributable to employment outside Australia is not assessable income in Australia and so will not be counted in the maximum earnings test. A non-resident with Australian sourced income that is not attributable to 'employment' activities may therefore be able to deduct a personal superannuation contribution made to an Australian superannuation provider against their Australian sourced income. 66. However, 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. In view of the above, foreign employment income received by the Taxpayer in the 201X-1Y income year will be attributable to employment activities in the 201X-1Y income year. Further, the facts provided indicate that the Taxpayer's employment income will not be less than 10% of the total of their assessable income, reportable fringe benefits total and reportable employer superannuation contributions. Accordingly, as the maximum earnings as employee condition has not been satisfied the Taxpayer will not be able to claim a deduction for personal contributions the Taxpayer intends to make to an Australian superannuation fund in the 201X-1Y income year. | Detailed Reasoning - Superannuation contributions made after 1 July 2017: It should be noted that, from 1 July 2017, the maximum earnings as employee condition no longer applies and regardless of the Taxpayer's employment arrangements the Taxpayer may be able to claim a tax deduction. As such, for contributions made on or after 1 July 2017, the Taxpayer's foreign employment income is not taken into account in working out their entitlement to a deduction for personal superannuation contributions. However, the Taxpayer will still need to meet the other eligibility requirements.