Private ruling: Personal deductible contributions
Date of advice: 8 October 2015
Published: October 2015
Ruling period: Income year ended 30 June 2015
Date scheme commenced: 1 July 2014

Ruling: Q1: Is an amount paid to your client under an income protection insurance policy included in the maximum earnings as an employee condition when assessing their eligibility to deduct personal superannuation contributions? | A1: No.

Relevant facts and circumstances: Your client suffered an injury in the relevant income year which caused your client to cease working. Prior to the date of injury, your client was self-employed. Late in the relevant income year, your client commenced to receive income from an income protection insurance policy. Your client received a PAYG Payment Summary showing gross payments made by the insurer in the subsequent income year. You have advised that during the subsequent income year, your client was not engaged in any of the following activities which would have resulted in your client being treated as an employee for the purposes of the Superannuation Guarantee (Administration) Act 1992 (SGAA 1992): • holding an office or appointment; • performing functions or duties; • engaging in work; • doing acts or things. All other income derived by your client in the subsequent income year was derived from sources other than as an employee for the purposes of the SGAA 1992. Your client made a personal superannuation contribution to a superannuation fund in the subsequent income year. Your client was less than 75 years old in the subsequent income 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 subsection 290-160(1) | Income Tax Assessment Act 1997 subsection 290-160(2) | Income Tax Assessment Act 1997 section 290-165 | Income Tax Assessment Act 1997 section 290-170 All references are to the ITAA 1997 unless otherwise stated.

Reasons for decision: Summary: Your client will not be subject to the maximum earnings test under section 290-160 of the ITAA 1997 because your client was not engaged in any employment activities during the subsequent income year. However, the conditions in sections 290-155 and 290-170 of the ITAA 1997 must also be satisfied for your client to claim a deduction for contributions made to a complying superannuation fund. | Detailed Reasoning - 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 under section 290-150 of the ITAA 1997. However, the conditions in sections 290-155, 290-160 (if applicable), 290-165 and 290-170 of the ITAA 1997 must also be satisfied for the person to claim the deduction. For the purposes of this case and to address the specific question you have raised, attention is focussed on section 290-160 of the ITAA 1997. | Detailed Reasoning - Maximum earnings as an employee condition: Subsection 290-160(1) of the ITAA 1997 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 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). For those persons who fall under the requirements outlined above, 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. This calculation is referred to as the maximum earnings test. The operation of the maximum earnings test is discussed in Taxation Ruling TR 2010/1 Income tax: superannuation contributions. Relevantly, paragraphs 58 and 59 state that: 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. [emphasis added] 59. 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. The term 'engaged' is not defined and takes its ordinary meaning. One of several meanings given to engaged is 'busy or occupied; involved'. Another meaning is 'under an engagement' where the ordinary meaning of 'engagement' is given as 'under an obligation or agreement' As reiterated in paragraph 58 of TR 2010/1, where a person is not employed at any time during the year, they are not subject to the maximum earnings test. You have advised in your private ruling application that your client was not engaged in any activities in the subsequent income year that would result in them being treated as an employee for the purposes of the SGAA 1992. Further, whilst your client was in receipt of income protection payments in the subsequent income year, these payments were made to compensate your client for loss of work. An income protection payment is not made in connection with an employee attending work or working during their ordinary hours of work. The employee is not remunerated for their labour or services. Your client did not physically carry out any obligations or duties of a job or work with respect to the income protection payments received and was therefore not engaged in employment activities. Accordingly, as your client did not engage in work or other employment activities that resulted in them being treated as an employee for the purposes of the SGAA 1992 they will not be subject to the maximum earnings test under section 290-160 of the ITAA 1997. | Detailed Reasoning - Age-related conditions: Section 290-165 of the ITAA 1997 requires a taxpayer (over the age of 18) to have made the contribution before the day that is 28 days after the end of the month in which they turn 75 years of age. As your client was less than 75 years old in the relevant income year in which the contribution was made, the requirements of section 290-165 of the ITAA 1997 have been satisfied. | Detailed Reasoning - Complying superannuation fund condition and notice of intent to deduct conditions: Whilst your client will not be subject to the maximum earnings test under section 290-160 of the ITAA 1997 and has satisfied the age-related requirement of section 290-165 of the ITAA 1997, the conditions in sections 290-155 and section 290-170 of the ITAA 1997 must also be satisfied for your client to claim a deduction in the subsequent income year. 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. 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 they lodge their 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, they must also receive an acknowledgement of the notice by the trustee of the superannuation fund.