Private ruling: Deductibility of personal superannuation contributions
Published: June 2014
Date scheme commenced: 1 July 2011

Ruling: Q1: Is your client entitled to claim a deduction under section 290-150 of the Income Tax Assessment Act 1997 (ITAA 1997)? Advice/Answer Yes.

Relevant facts and circumstances: During the 200X income year your client was terminated from employment and since then, due to health problems, has not been engaged in any employment activities. Since 20XX, your client has been receiving monthly income protection benefits. These benefits have been reported in your client's income tax returns. During the relevant income year, your client made personal superannuation contributions to a complying superannuation fund, (the Fund). During the subsequent income year your client made personal superannuation contributions to the Fund. You have advised that your client provided the trustee of the Fund with valid notices in the approved form of your client's intention to claim a tax deduction for the personal contributions made in the relevant income years. The trustee of the Fund has acknowledged the notices in respect of the personal contributions. Your client will provide the trustee of the Fund with a valid notice in the approved form of your client's intention to claim a tax deduction for the personal contributions to be made in the 2013-14 income year. You expect that the trustee of the Fund will acknowledge this notice in respect of the personal contributions. You state that the notice for the 2013-14 income year will be given by the earlier of: (a) the date your client lodges their income tax return; or (b) the end of the income year following the year in which the contribution is made. You have advised that your client did not hold an office or perform any work or other activities that would result in your client being treated as an employee for the purposes of the Superannuation Guarantee (Administration) Act 1992 (SGAA) from 1 July 2011 up to and including the 2013-14 income year. You have advised that a deduction for the proposed contributions will not add to or create a loss for your client for the relevant income year and up to the 2013-14 income year. Your client is under the age of 55 years. Assumptions You have been advised and agree with the following assumptions being made in issuing the Notice of Private Ruling for your client: _ personal contributions of up to the concessional contributions cap will be made to the Fund for your client in the 2013-14 income year; and _ your client will not be employed in employment activities in the 2013-14 income year that result in your client being treated as an employee for the purposes of the SGAA therefore will satisfy the maximum earnings condition in section 290-160 of the ITAA 1997; and _ the Fund will accept your client's personal contributions in the 2013-14 income year; and _ your client will provide a written notice to the trustee of the Fund in accordance with section 290-170 of the ITAA 1997 stating that your client intends to claim as a tax deduction in respect of the personal contributions made in the 2013-14 income year and that in providing this notice will satisfy all the requirements of section 290-170; and _ the trustee of the Fund will provide a written notice for the 2013-14 income year under section 290-170 of the ITAA 1997 acknowledging receipt of your client's notice; and _ the deduction for the proposed contributions will not add to or create a loss for your client for the 2013-14 income year.

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 Subsection 290-150(2). | 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 Paragraph 290-160(1)(a). | Income Tax Assessment Act 1997 Paragraph 290-160(1)(b). | 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 Section 290-175. | Superannuation Guarantee (Administration) Act 1992 Subsection 6(1). Summary | Based on the information provided, your client is eligible to claim a deduction for personal superannuation contributions made in the relevant income years as: | (a) all the conditions for claiming the deductions will be satisfied; and | (b) the deduction for the contributions for those income years do not add to or create a loss. | Your client is also eligible to claim a deduction for personal superannuation contributions made in the 2013-14 income year provided: | (a) all the conditions for claiming the deductions will be satisfied; and | (b) the deduction for the contributions for that income year does not add to or create a loss. | Detailed Reasoning | Personal 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, 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 must all be satisfied before the person can claim a deduction for the contributions made in that income year. | These conditions are explained in detail in Taxation Ruling TR 2010/1 entitled 'Income Tax: superannuation contributions' . | 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 you made the contribution. | In this instance your client has made, and proposes to make, personal contributions to the Fund. The Fund is a complying superannuation fund. Therefore, your client will satisfy this condition. | Maximum earnings as an employee condition - 10% test | Subsection 290-160(1) of the ITAA 1997 operates to apply 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)): | _ 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 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 paragraph 58 of TR 2010/1 the Commissioner states that those persons who have not engaged in an 'employment' activity in the income year in which they make a contribution are not subject to the maximum earnings test. | The maximum earnings as an employee condition does not apply to your client | The employment activity condition outlined in subsection 290-160(1) of the ITAA 1997 has two parts. To satisfy this condition, therefore, a taxpayer must both: | _ engage in any of the employment activities specified in paragraph 290-160(1)(a) of the ITAA 1997, and | _ as a result, be treated as an employee for the purposes of the SGAA (paragraph 290-160(1)(b) of the ITAA 1997). | At this point it should be noted that persons who, although receiving workers' compensation payments, are not actually employed at any time during the year, are not subject to the maximum earnings test. | In this case, you have stated that your client is not, and will not, be an employee for the years ending 30 June 2012 to 30 June 2014 and that your client will continue to receive income protection payments during those years. | 'Ordinary Times Earnings', which is used to determine eligible income for the purposes of the SGAA, is defined under subsection 6(1) of the SGAA as meaning: | (a) the total of: | (i) earnings in respect of ordinary hours of work other than earnings consisting of a lump sum payment of any of the following kinds made to the employee on the termination of his or her employment: | (A) a payment in lieu of unused sick leave; | (B) a payment in lieu of unused annual leave within the meaning of subsection 26AC(1) of the Income Tax Assessment Act 1936 ; | (C) a payment in lieu of unused long service leave within the meaning of subsection 26AD(1) of the Income Tax Assessment Act 1936 ; and (ii) earnings consisting of over award payments, shift loading or commission; or | (b) if the total ascertained in accordance with paragraph (a) would be greater than the maximum contribution base for the contribution period the maximum contribution base'. | Paragraphs 271 to 273 of Superannuation Guarantee Ruling SGR 2009/2 deal with workers' compensation and other payments made on behalf of an employer and state: | 271 Workers' compensation payments, including top-up payments, received by an injured employee where the employee performs work or is required to attend work is considered 'salary or wages'. This is despite the fact the workers' compensation may be paid by another party such as an insurance company rather than the employer. | 272 Under subsection 6(3), payments of salary or wages to an employee can be made by another party on behalf of the employer. The payment is also considered 'salary or wages' if an employee is directed by the employer to perform services for another party, or is only required to attend a workplace. 1 | 273 However, workers' compensation payments, including top-up payments received by an injured employee who does not work or is not required to attend work due to incapacity to work, are not considered 'salary or wages'. In these cases the payments are to be categorised as compensation for loss of work rather than 'salary or wages'. | Whilst income protection payments are not workers' compensation payments, like workers' compensation payments they are not paid for the performance of work. They are paid to compensate the insured person for the loss of income. Therefore they would not be earnings in respect of ordinary hours of work. Consequently, an employer would not be required to provide superannuation guarantee support on these payments. | On the basis of the facts provided, it is accepted that your client has not earned any eligible income for the purposes of the SGAA for the relevant years and that no other person was obligated to make contributions to a superannuation fund for the benefit of your client. | Furthermore, the Commissioner has given an example which refers to the 'maximum earnings test'. At paragraphs 88 and 89 of TR 2010/1 the Commissioner states: | Example 8 - maximum earnings test | 88. Caitlin terminates her employment with Bling Pty Ltd on 30 June 2009 and was paid unused long service leave and annual leave on 3 July 2009. Caitlin made a contribution of $5,000 to her complying superannuation fund on 9 July 2009. Caitlin was not engaged in any employment activities for the 2009-10 income year. | 89. As Caitlin was not engaged in any employment activities in the 2009-10 income year, she does not need to meet the earnings test in relation to her $5,000 contribution. | Therefore 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 that labour or services. | In this case, your client ceased employment with the employer during the 200X income year due to health issues. You have advised that your client will not be engaged in any activities during the 2011-12, 2012-13 and 2013-14 income years that would make your client an employee for the purposes of the SGAA. | The income protection benefits made to your client is not income that is attributable to employment as an employee, nor would the payments result in your client being treated as an employee for the purposes of the SGAA. Further, your client is not in receipt of any other income, reportable fringe benefits or reportable employer superannuation contributions that would result in your client being treated as an employee for the purposes of the SGAA. | Consequently, the maximum earnings as an employee test under section 290-160 of the ITAA 1997 will not apply to your client for the 2011-12, 2012-13 and 2013-14 income years. | Age-related conditions | 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. | As your client will be under age 55 during the three income years your client has made or intends to make the contributions to the Fund, your client will satisfy the age-related conditions. | Notice of intent to deduct conditions | Section 290-170 of the ITAA 1997 provides that your client must give to the trustee of the complying superannuation fund (the fund trustee) a valid notice, in the approved form, of your client's intention to claim a deduction in respect of the contribution, and your client must also have been given an acknowledgment of receipt of the notice by the fund trustee. | Section 290-170 of the ITAA 1997 also provides that your client must give the notice to the fund trustee by the earlier of the date of your client's income tax return being lodged or the end of the income year following the year in which the contribution was made. | In addition, the fund trustee is required to acknowledge your client's notice without delay. | A notice will be valid as long as the following conditions are satisfied: | the notice is in respect of the contribution; | the notice is not for an amount covered by a previous notice; | _ at the time when the notice is given: | • your client is a member of the fund; | • the fund trustee 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); | • the fund trustee has not begun to pay a superannuation income stream based on the contribution; or | _ before the notice is given: | • a contributions splitting application has not been made in relation to the contribution; and; | • the fund trustee has not rejected the application. | You have advised that valid notices have been provided to the fund trustee indicating your client's intention to claim a deduction in respect of the personal contributions made in the relevant income years. You have also advised that your client has received written notices from the trustee acknowledging receipt of your client's notices of intent to claim a deduction for the contributions. You assert that your client has met the requirements of section 290-170 of ITAA 1997. | The notice of intent to deduct condition under section 290-170 of the ITAA 1997 is satisfied for the relevant income years. | The notice of intent to deduct conditions under section 290-170 of the ITAA 1997 will be satisfied for the 2013-14 income year provided your client lodges a valid notice of intent with the fund trustee before the earlier of: | (a) your client's income tax return for the 2013-14 income year is lodged; or | (b) 30 June 2015; and | the trustee duly acknowledges your client's notice. | Deduction limited by amount specified in notice | Section 290-175 of the ITAA 1997 states that the deduction cannot be more than the amount covered by the notice given under section 290-170 of the ITAA 1997. | Provided the amount of the deduction your client will claim does not exceed the amount specified in your client's section 290-170 notice, your client will also satisfy this requirement. | Deduction limits | As noted in your application, 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 years' tax losses and any deductions for farm management losses) from a taxpayer's assessable income. | Therefore a deduction for personal superannuation contributions cannot add to or create a loss. | You have advised that your client's deduction for the contributions will not add to or create a loss in for the 2011-12, 2012-13 and 2013-14 income years. Therefore it is accepted that this requirement will be satisfied. | Contribution limits | The concessional contributions cap is $25,000 for the 2011-12, 2012-13 and 2013-14 income years. Concessional contributions include employer contributions (including contributions made under a salary sacrifice arrangement) and personal contributions claimed as a tax deduction by a person. | Conclusion | As your client will satisfy the required conditions in sections 290-155, 290-165 and 290-170 of the ITAA 1997 and was not required to satisfy section 290-160, your client will be entitled to claim a deduction of up to the concessional contributions cap of $25,000 for concessional superannuation contributions made in the income year provided the deduction does not add to or create a tax loss in that income year. | 1 The Commissioner's views on the SGAA treatment of tripartite relationships are set out in SGR 2005/2 - see paragraphs 66 to 68.