Private ruling: Conditions for deducting a personal contribution
Published: October 2014
Ruling period: Income year ending 30 June 2015.
Date scheme commenced: 1 July 2014.

Ruling: Q1: 1. Will the taxpayer satisfy the maximum earnings as employee condition under section 290-160 of the Income Tax Assessment Act 1997 (ITAA 1997) in the 2014-15 income year? 2. Will the taxpayer be entitled to claim a deduction under section 290-155 of the ITAA 1997 in the 2014-15 income year? | A1: 1. Yes. 2. Yes.

Relevant facts and circumstances: You have specified the types and amounts of income that the taxpayer (the Taxpayer) will receive in the 2014-15 income year. You have advised that the Taxpayer intends to make a personal superannuation contribution into a complying superannuation fund (the Fund) in the 2014-15 income year. The Taxpayer will be between 65 and 70 years of age in the 2014-15 income year. Assumptions The Taxpayer will not be receiving any reportable fringe benefits or any reportable employer superannuation contributions in the 2014-15 income year. The Taxpayer will provide a valid notice, in the approved form, to the trustee of the Fund in accordance with section 290-170 of the ITAA 1997 stating that they intend to claim a deduction the personal superannuation contributions made in the 2014-15 income year. The trustee of the Fund 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.

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) | Superannuation Industry (Supervision) Regulations 1994 subregulation 1.03(1) | Superannuation Industry (Supervision) Regulations 1994 subregulation 7.04(2)

Reasons for decision: Summary: In the 2014-15 income year, less than 10% of the total of the Taxpayer's assessable income, reportable fringe benefits and reportable employer superannuation contributions will be attributable to the their employment-related activities. Therefore, the Taxpayer will satisfy the maximum earnings test under section 290-160 of the ITAA 1997. Based on the information provided, the Taxpayer will satisfy the conditions under sections 290-155, 290-160 and 290-165 of the ITAA 1997. Therefore, the Taxpayer will be entitled to claim a deduction for personal superannuation contributions made in the 2014-15 income year provided that they are able to satisfy the notice of intent to deduct conditions under section 290-170 of the ITAA 1997. | 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 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 figures provided in this case indicate that less than 10% of the total of the Taxpayer's assessable income, reportable fringe benefits and reportable employer superannuation contributions will be attributable to the Taxpayer's employment-related activities. Therefore the Taxpayer will satisfy the maximum earnings 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 person made the contribution. In this case, you have advised that 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. As the Taxpayer will be under 75 years of age during the 2014-15 income year when the contribution will be made, the Taxpayer will satisfy the age-related conditions. | Detailed Reasoning - Notice of intent to deduct conditions: According to section 290-170 of the ITAA 1997, in order to deduct a contribution, a taxpayer is required to provide to the trustee of the fund a valid notice, in the approved form, of their intention to claim a deduction. The notice must be given by the earlier of the date the taxpayer lodges their income tax return for the income year in which they made the contribution or the end of the following income year. The taxpayer must also be given an acknowledgment of receipt of the notice by the trustee of the fund. A notice of intent for 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 this case it is assumed that the Taxpayer will give a valid notice of intent to the trustee of the Fund before the Taxpayer lodges their income tax return for the 2014-15 income year or before 30 June 2016, whichever is the earlier. It is also assumed that the trustee of the Fund will duly acknowledge the notice. Under these circumstances, the notice of intent to deduct conditions under section 290-170 of the ITAA 1997 will be satisfied. As the Taxpayer has already satisfied the conditions under sections 290-155, 290-160 and 290-165 of the ITAA 1997, satisfying the conditions under section 290-170 of the ITAA 1997 will allow the taxpayer to claim a deduction for personal superannuation contributions made 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 - Other relevant comments: Rules on whether a regulated superannuation fund is able to accept contributions are set out in the Superannuation Industry (Supervision) Act 1993 and the Superannuation Industry (Supervision) Regulations 1994 (SISR). Under subregulation 7.04(2) of the SISR, where the member is between age 65 and age 70, they must be gainfully employed on at least a part-time basis during the income year in order for a superannuation fund to be able to accept contributions from that member. To meet this requirement, the member must be gainfully employed for at least 40 hours in a period of not more than 30 consecutive days in that income year. This is generally referred to as the 'work test'. 'Gainfully employed' means employed or self-employed for gain or reward in any business, trade, profession, vocation, calling, occupation or employment (subregulation 1.03(1) of the SISR). The concept of 'gain or reward' envisages receipt of remuneration such as salary or wages, business income, bonuses, commissions, fees or gratuities, in return for personal exertion. It does not encompass a person who is only receiving passive income (e.g. trust distributions, dividends). The Taxpayer will be between 65 and 70 years of age when the contribution is made. Therefore, for the contributions to be accepted by the Fund, the taxpayer will have to be gainfully employed in the 2014-15 income year on at least a part-time basis.