Private ruling: Deductibility of personal superannuation contributions
Published: December 2014
Ruling period: Income year ending 30 June 2015
Date scheme commenced: 1 July 2014

Ruling: Q1: 1. Does the maximum earnings as employee condition under section 290-160 of the Income Tax Assessment Act 1997 (ITAA 1997) apply to a taxpayer (the Taxpayer) in the 2014-15 income year? 2. Can the Taxpayer claim a deduction under section 290-150 of the ITAA 1997 in respect of a proposed personal superannuation contribution to be made during the 2014-15 income year? | A1: 1. No 2. Yes

Relevant facts and circumstances: During the 2014-15 income year, the Taxpayer will receive the following income: • workers compensation payments; • superannuation income stream payments; • income from personal business; and • rental property income During the 2014-15 income year, the Taxpayer will not be engaged in any employment activities. The taxpayer intends to make a personal superannuation contribution to a complying superannuation fund (the Fund) in the 2014-15 income year. The taxpayer will provide a valid notice, in the approved form, to the trustee of the Fund (the Trustee) in accordance with section 290-170 of the ITAA 1997. The Trustee will give to the Taxpayer an acknowledgement of receipt of a valid notice for the 2014-15 income year in accordance with section 290-170 of the ITAA 1997. The taxpayer is over 18 but less than 74 years of age.

Relevant legislative provisions: Income Tax Assessment Act 1997 subsection 26-55(2) | 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 subsection 290-165(2) | Income Tax Assessment Act 1997 section 290-170 | Income Tax Assessment Act 1997 subsection 290-170(2)

Reasons for decision: Summary: The Taxpayer will not be subject to the maximum earnings as employee test under section 290-160 of the ITAA 1997 because, based on the information provided, the Taxpayer will not be engaged in any employment activities during the 2014-15 income year. Based on the information provided, the Taxpayer will satisfy all of the conditions for claiming a deduction for personal superannuation contributions in the 2014-15 income year. Therefore, the Taxpayer can claim a deduction for personal superannuation contributions to be made in the 2014-15 income year. | 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. | Detailed Reasoning - Maximum earnings as 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 of TR 2010/1 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' The facts provided in this case indicate that the Taxpayer is not currently employed and that they will not engage in any activities in the 2014-15 income year that would make them an employee for the purposes of the Superannuation Guarantee (Administration) Act 1992 . Accordingly, the Taxpayer will not be subject to the maximum earning as employee test under section 290-160 of the ITAA 1997. | Detailed Reasoning - Complying superannuation fund condition: The condition in 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. In this case, the Taxpayer's personal superannuation contribution will be made to a complying superannuation fund in the 2014-15 income year. Therefore, the complying superannuation fund condition will be satisfied. | Detailed Reasoning - Age-related conditions: Relevantly, under subsection 290-165(2) of the ITAA 1997, the ability to claim a deduction ceases for contributions that are made after 28 days from the end of the month in which the person making the contribution turns 75 years of age. The Taxpayer will be under 75 years of age during the 2014-15 income year when the contribution will be made. Therefore, the Taxpayer will satisfy the age-related conditions for the contribution in the 2014-15 income year. | Detailed Reasoning - Notice of intent to deduct conditions: According to section 290-170 of the ITAA 1997, in order to deduct a contribution, the Taxpayer is required to give to the Trustee a valid notice, in the approved form, of their intention to claim a deduction. The notice must be given by the earlier of: (a) the date the Taxpayer lodges their income tax return for the income year in which the contribution is made; or (b) the end of the following income year. The Taxpayer must also, have been given an acknowledgment of receipt of the notice by the Trustee. A notice of intent to deduct the Taxpayer's contributions will not be valid if one or more of the following conditions in subsection 290-170(2) of the ITAA 1997 are satisfied: (a) the notice is not in respect of the contribution; (b) the notice includes all or part of an amount covered by a previous notice; (c) when you gave the notice: (i) you were not a member of the fund or the holder of the *RSA; or (ii) the trustee or *RSA provider no longer holds the contribution; or (iii) the trustee or RSA provider has begun to pay a *superannuation income stream based in whole or part on the contribution; (d) before you gave the notice: (i) you had made a contributions splitting application... in relation to the contribution; and (ii) the trustee or RSA provider had not rejected the application. In relation to the proposed contribution in the 2014-15 income year, if the Taxpayer gives a valid notice of intent to the Trustee within the time required; and the Trustee duly acknowledge the notice, section 290-170 of the ITAA 1997 will be satisfied. As the Taxpayer has already satisfied the conditions under sections 290-155 and 290-165 of the ITAA 1997, and will not be required to satisfy section 290-160 of the ITAA 1997, satisfying the conditions under section 290-170 of the ITAA 1997 will allow the Taxpayer to claim a deduction for the proposed personal superannuation contribution in the 2014-15 income year. | Detailed Reasoning - Deduction limits: The allowable deduction is limited under subsection 26-55(2) of the ITAA 1997 to the amount of assessable income remaining after subtracting all other deductions (excluding previous year's tax losses and any deductions for farm management losses) from a taxpayer's assessable income. Thus a deduction for personal superannuation contributions cannot add to, or create, a loss. | Detailed Reasoning - Contribution limits: The concessional contributions cap for the 2014-15 income year is $35,000 for taxpayers aged 49 years or over on the last day of the previous income year. Concessional contributions include all employer superannuation contributions and any personal contributions claimed as a tax deduction. As the Taxpayer was over 49 years of age on 30 June 2014, they will be able to claim a deduction up to the concessional contributions cap of $35,000 . If the Taxpayer's contributions exceed the concessional contributions cap, the excess amount will be included in the Taxpayer's assessable income and taxed at their marginal tax rate.