Private ruling: Deductibility of personal superannuation contributions - 'Maximum earnings as an employee' condition.
Date of advice: 9 March 2017
Published: August 2017
Ruling period: Year ending 30 June 20ZZ
Date scheme commenced: 1 July 20YY

Ruling: Q1: Do you need to satisfy the maximum earnings as an employee condition under subsection 290-160 of the Income Tax Assessment Act 1997 (ITAA 1997) to claim a deduction for personal superannuation contributions in the 20VV-WW to 20YY-ZZ income years? | A1: No

Relevant facts and circumstances: 1) you were born in1960 2) you receive incapacity payments as compensation following a loss of earnings due to a workplace injury 3) The incapacity payments are paid by insurance agency following the cessation of your employment with a company in mid-20YY 4) You have confirmed that your client has not worked, nor has been required to work, in any capacity as an employee since mid-20YY due to incapacity.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 290-150. | Income Tax Assessment Act 1997 section 290-160. | Superannuation Guarantee (Administration) Act 1992 section 12 | Superannuation Guarantee (Administration) Act 1992 subsection 12(3) | Superannuation Guarantee (Administration) Act 1992 subsection 12(11)

Reasons for decision: Summary: 1) You are not engaged in activities that would result in you being considered an employee for the purposes of the Superannuation Guarantee (Administration) Act 1992 . Accordingly, the 'maximum earnings as employee condition' does not apply to you. | Detailed Reasoning - Maximum earnings as an employee condition:: 1) The condition in section 290-160 of the ITAA 1997 requires that if a taxpayer is engaged in any activities that result in them being treated as an employee for the purposes of the Superannuation Guarantee (Administration) Act 1992 (SGAA), then less than 10% of the total of the following must be attributable to those activities: ● their assessable income for the income year; ● their reportable fringe benefits (RFB) for the income year; and ● the total of their reportable employer superannuation contributions (RESC) for the income year. 2) 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 appointment; (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). 3) Taxation Ruling TR 2010/1, which considers the meaning of superannuation contributions and some of the rules that apply for the employee or personal contributions to be deducted, refers to the above activities as 'employment' activities. 4) Paragraph 58 of TR 2010/1 states: (i) 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. 5) With respect to workers' compensation payments, paragraphs 271 to 273 of Superannuation Guarantee Ruling SGR 2009/2 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. 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'. 6) Whilst the incapacity benefit payments you receive are not workers' compensation payments they have similar application as they too are not paid for the performance of work but rather to compensate the person for the loss of work. As such incapacity benefit payments do not deem a recipient to be engaged in an 'employment' activity. 7) Further, the facts state that you ceased employment with the company in mid-20YY. You have confirmed that you have not worked, nor are required to work, in any capacity as an employee since cessation date. 8) Based on the above, the maximum earnings as employee condition under section 290-160 of the ITAA 1997 does not apply to you. This will remain the case unless the facts relied on for this private ruling change. | Detailed Reasoning - Deduction for personal deductible superannuation contributions: 9) A person can claim a deduction for personal contributions made to a superannuation fund for the purpose of providing superannuation benefits for themselves (or their dependants after their death) under section 290-150 of the ITAA 1997. 10) However, the conditions in sections 290-155, 290-160, 290-165 and 290-170 of the ITAA 1997 must also be satisfied for the person to claim the deduction. 11) Complying superannuation fund condition 12) 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. 13) Provided you make a contribution to a complying superannuation fund, this requirement will be satisfied. | Detailed Reasoning - Maximum earnings as an employee condition: 14) See above analysis for application of the maximum earnings as an employee condition. Provided the facts listed above do not change, this condition will not apply to you. | Detailed Reasoning - Age-related conditions: 15) 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. | Detailed Reasoning - Notice of intent to deduct conditions: 16) 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. The notice must be given before the earlier of: ● the date you lodge your 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. 17) In addition, you must also have been given an acknowledgement of the notice by the trustee of the superannuation fund. 18) A notice will be valid as long as the following conditions apply: (a) the notice is in respect of the contributions; (b) the notice is not for an amount covered by a previous notice; (c) at the time when the notice is given; ● you are a member of the fund or the holder of the retirement savings account (RSA); ● the trustee or RSA provider 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 trustee or RSA provider has not begun to pay a superannuation income stream based on the contribution; or (d) before the notice is given: ● a contributions splitting application has not been made in relation to the contribution; and ● the trustee or RSA provider to which you made the application has not rejected the application. 19) Provided your client lodges a valid notice under section 290-170 of the ITAA 1997 and the trustee/s of the fund acknowledge the notice within the specified timeframes, this requirement will be satisfied for the relevant income year. | Detailed Reasoning - Deduction limits: 20) 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 deposits) from a taxpayer's assessable income. Thus a deduction for personal superannuation contributions cannot add to or create a loss in the relevant income year the deduction is to be claimed. | Detailed Reasoning - Contribution limits and the concessional contributions cap: 21) Concessional contributions include employer contributions (including contributions made under a salary sacrifice arrangement) and personal contributions claimed as a tax deduction by a person. 22) In your case, $35,000 is the concessional contribution cap that applies in each of the 20XX-20YY and 20YY-ZZ income years. 23) From 1 July 2017, the general concessional contributions cap is $25,000 for all individuals regardless of age. | Detailed Reasoning - Does Part IVA or any other anti-avoidance provision apply to this ruling?: The ruling is limited to the questions raised in the application.