Private ruling: Personal deductible contributions
Date of advice: 18 February 2016
Published: April 2016
Ruling period: Income year ending 30 June 2016 | Income year ending 30 June 2017 | Income year ending 30 June 2018 | Income year ending 30 June 2019
Date scheme commenced: 1 July 2015

Ruling: Q1: Is your client eligible to claim a deduction under section 290-150 of the Income Tax Assessment Act 1997 (ITAA 1997) for personal superannuation contributions in the 20XX-YY income years? | A1: No.

Relevant facts and circumstances: Your client is less than 75 years old. Your client commenced employment as a commercial pilot with a foreign employer in the 20VV-WW income year. Your client will be based overseas for the duration of their employment, which is expected to be approximately four years. During this period, your client will remain an Australian resident for income tax purposes. The foreign employer is a non-resident employer and does not provide any superannuation support for your client. The majority of your client's assessable income for each financial year will be comprised of foreign salary and wages paid by the non-resident employer. You have provided information stating: …my client's estimated annual taxable income from foreign employment will be more than 10% of their total annual assessable income. The client's foreign employment income is estimated to be close to 100% of their total assessable income.

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: Based on the information provided your client does not qualify for a deduction for personal superannuation contributions proposed to be made, as they do not satisfy the legislative requirements for claiming a deduction under section 290-150 of the ITAA 1997. | Detailed Reasoning - Personal superannuation contributions made in the 2016-19 income years: 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 ITAA 1997, provided certain conditions are met. 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. It is important to note, that the test for the deductibility of personal superannuation contributions does not include the level of employer superannuation support a person receives or should have received. | 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, your client proposes to make personal superannuation contributions to a complying superannuation fund, if eligible to claim a deduction for personal contributions. The requirements of section 290-155 of the ITAA 1997 will therefore be satisfied. | 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 reportable 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 Superannuation Guarantee (Administration) Act 1992 (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, your client: • is employed by a non-Australian resident employer in the capacity as a commercial pilot. • is based overseas and all of their wages are paid into a single overseas bank account . • your client's foreign employment income is estimated to be close to 100% of their total assessable income. In the application of the maximum earnings test, the relevant 'employment' activity need not be an activity in Australia. Paragraph 251 of Taxation Ruling TR 2010/1 entitled Income tax: superannuation contributions provides: The SGAA does not contain any territorial nexus that limits which individuals will be treated as employees for the purposes of the SGAA. The practical limits of the application of the SGAA are created through the modification of the meaning of salary or wages in section 27 of the SGAA. That section ensures that amounts received, for example, by a non-Australian resident employee working outside Australia or an Australian resident employed by a non-resident employer to work outside Australia are not taken into account as salary or wages when working out whether an employer has an individual superannuation guarantee shortfall for an employee. As re-iterated in paragraph 252 of TR 2010/1 where a person engages in any 'employment' activity in the income year a deduction can only be claimed where, …the assessable income, reportable fringe benefits total, and (from 1 July 2009) reportable employer superannuation contributions attributable to the 'employment' activities are together less than 10% of the person's total assessable income, reportable fringe benefits total and employer superannuation contributions in the income year that the contribution is made. Employment income of an Australian resident employed overseas by a foreign employer will therefore be counted in the maximum earnings test if the income is assessable income (as stated in paragraph 262 of TR 2010/1). Based on the above, your client is clearly engaged in work or other activities that result in your client being treated as an employee for the purposes of the SGAA. The 'maximum earnings test' requires that less than 10% of the total of the contributor's assessable income, reportable fringe benefits total and total reportable employer superannuation contributions for the income year is attributable to their employment related activities. In this case, income paid by the foreign employer to your client is assessable income for the purposes of the maximum earnings test and for the purposes of what constitutes assessable income to be declared in the income tax return of your client. It should be noted that, under section 23AG of the Income Tax Assessment Act 1936 (ITAA 1936), foreign earnings derived from certain activities by an Australian resident taxpayer may be exempt from being included in assessable income. This section, however, only applies to a very small category of overseas workers. For example, if the foreign earnings are attributable to Australia's overseas aid program, a relief fund or an exempt institution, the foreign earnings will be exempt. In this case, as the foreign income derived by your client is not attributable to any of the exemptions under subsection 23AG(1AA) of the ITAA 1936, your client's income derived whilst working for the foreign employer is not exempt. As noted previously, when activities result in a person being treated as an employee for the purposes of the SGAA, then the total of the contributor's assessable income, reportable fringe benefits total and total reportable employer superannuation contributions for the income year attributable to their employment related activities, must be less than 10% of their total assessable income, reportable fringe benefits and reportable employer superannuation contributions in order for the person to claim a deduction for a personal contribution. | Detailed Reasoning - Assessable income: The assessable income of an Australian resident includes all ordinary income derived directly or indirectly from all sources, whether in or out of Australia, during the income year. The facts of this case indicate that the majority of your client's assessable income for the relevant income years will be comprised of foreign salary and wages paid by the non-resident employer. As such, your client's assessable income, reportable fringe benefits total and total reportable employer superannuation contributions for the income year attributable to his employment related activities, will be greater than 10% of his total assessable income, reportable fringe benefits and reportable employer superannuation contributions. This was confirmed in your correspondence in which you state that your client's: …estimated annual taxable income from foreign employment will be more than 10% of their total annual assessable income. As your client fails to satisfy the maximum earnings test of subsection 290-160(2) of the ITAA 1997, a deduction for personal superannuation contributions is not available. Having failed the maximum earnings test, there is no need to examine whether the conditions of sections 290-165 and 290-170 of the ITAA 1997 would be satisfied by your client, as your client must satisfy all the tests specified in section 290-150.