Private ruling: Deduction for personal superannuation contribution
Published: June 2012
Ruling period: 2011-12 income year.
Date scheme commenced: 1 July 2011

Ruling: Q1: Can your client claim a deduction for a personal superannuation contribution to be made to a constitutionally protected fund under section 290-150 of the Income Tax Assessment Act 1997 (ITAA 1997)? | A1: Yes.

Relevant facts and circumstances: Your client is under 50 years of age. Your client operates in private practice. Your client is a member the Fund. The Fund is a constitutionally protected fund (CPF). The Fund is also an exempt public sector superannuation scheme and a complying superannuation fund. You understand that under the rules which govern the Fund, your client is able to make personal superannuation contributions to the Fund. In this light, your client intends to make a personal contribution to the Fund in the 2011-12 income year. Your client intends to provide a written notice to the Trustee for the Fund, stating that they intend to claim a deduction for this contribution. Your client also intends to receive a notice for the 2011-12 income year from the Trustee for the Fund, acknowledging receipt of their notice of intent in respect of this contribution. You have advised that your client will not generate income as an employee, including reportable fringe benefits and reportable superannuation contributions, during the 2011-12 income year that exceeds 10% of their assessable income for the same period. You state that therefore, your client will satisfy the maximum earnings as an employee condition under section 290-160 of the Income Tax Assessment Act 1997 (ITAA 1997). You have advised that a deduction for the proposed contribution will not add to or create a loss for your client in the 2011-12 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. | Income Tax Assessment Act 1997 Subparagraph 292-25(2)(c)(iii). | Income Tax Assessment Act 1997 Subsection 995-1(1). | Income Tax Assessment Regulations 1997 Regulation 995-1.04.

Reasons for decision: Summary: Based on the information provided, your client can claim a deduction for personal superannuation contributions made in the 2011-12 income year, as all the conditions for claiming the deduction will be satisfied. | Detailed Reasoning - Personal superannuation contributions made in the 2011-12 income year: 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 Income Tax Assessment Act 1997 (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 (TR 2010/1) entitled 'Income Tax: superannuation contributions' . | 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 you made the contribution. In this instance, your client proposes to make a personal contribution to the Fund. The Fund is an exempt public sector superannuation scheme, and is a complying superannuation fund. Therefore, your client will satisfy this condition. | Detailed Reasoning - Maximum earnings as an employee condition: 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 Superannuation Guarantee (Administration) Act 1992 (SGAA). For those persons who are engaged in any 'employment' activities in the 2011-12 income year, 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 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, as specified in paragraph 290-160(1)(b) of the ITAA 1997. Your client operates in private practice. You assert that your client will satisfy the maximum earnings test during the 2011-12 income year. Based on the facts provided, your client will be deemed to satisfy the conditions under section 290-160 of the ITAA 1997. | Detailed Reasoning - 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 75 at the time they intend to make the proposed contribution to the Fund during the 2011-12 income year, your client will satisfy the age-related conditions. | Detailed Reasoning - 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 their intention to claim a deduction in respect of the contribution, and they 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 their notice to the fund trustee by the earlier of the date they lodge their income tax return 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 your client will provide a valid notice of their intention to claim a deduction to the fund trustee in respect of the proposed contribution. You have also advised that your client will receive a written notice from the trustee acknowledging receipt of their notice of intent for the contribution. You assert that your client will meet the requirements of section 290-170 of ITAA 1997 once they have taken these actions. Provided your client lodges a valid notice of intent with the fund trustee before they lodge their income tax return for the 2011-12 income year or by 30 June 2013, whichever is the earlier, and the trustee duly acknowledges their notice, the notice of intent to deduct conditions under section 290-170 of the ITAA 1997 will be satisfied. | Detailed Reasoning - 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. You have advised that your client intends to claim a deduction in respect of the contribution. Provided this amount does not exceed the deductible amount specified in their section 290-170 notice, your client will also satisfy this requirement. | Detailed Reasoning - 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 the deduction for the proposed contribution will not add to or create a loss in the 2011-12 income year. Therefore it is accepted that the deduction for the contribution will not create or increase a loss in this income year. | Detailed Reasoning - Conclusion: As your client will satisfy all the required conditions in subdivision 290-C of the ITAA 1997, your client can claim a deduction in the 2011-12 income year for the entire personal contribution they intend to make to the Fund in this income year. Further issues for you to consider | Detailed Reasoning - Concessional contributions: Concessional contributions made to complying superannuation funds are subject to an annual cap. For the 2011-12 financial year the annual concessional contributions cap is $25,000, for people aged under 50 years of age during this financial year. The amount of a person's concessional contributions for a financial year is determined under section 292-25 of the ITAA 1997. Subsection 292-25(2) of the ITAA 1997 provides that unless specifically excluded, they include contributions made to a complying superannuation fund by or for a person in that year, which are included in the fund's assessable income. Most commonly, these contributions include employer contributions (including contributions made under a salary sacrifice arrangement) and personal contributions claimed as a tax deduction by a person. | Detailed Reasoning - Contributions made to a constitutionally protected fund: Most contributions that are not assessable income of the fund are not concessional contributions. Paragraph 292-25(2)(c) of the ITAA 1997 sets out amounts that are not included in a person's concessional contributions for a financial year, even though these contributions might be included in the fund's assessable income for that year. Subparagraph 292-25(2)(c)(iii) of the ITAA 1997 excludes any contributions made to a constitutionally protected fund (CPF) from being concessional contributions. This is because CPFs do not pay income tax on the contributions or earnings they receive. It is noted that the Fund is a CPF. Therefore, subparagraph 292-25(2)(c)(iii) of the ITAA 1997 operates to exclude the contributions you propose to make in June 2012 from being concessional contributions in the 2011-12 financial year. Further, subparagraph 292-90(2)(c)(iv) of the ITAA 1997 operates to exclude these contributions from being non-concessional contributions in this financial year. As a result, these contributions will not be counted towards either your client's concessional contributions cap or their non-concessional contributions cap for this financial year.

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