Private ruling: Personal superannuation contributions deduction
Date of advice: 10 August 2018
Published: October 2018
Ruling period: Income year ended 30 June 2017
Date scheme commenced: 1 July 2016

Ruling: Q1: For the purposes of section 290-150 of the Income Tax Assessment Act 1997 (ITAA 1997), does the maximum earnings as employee condition in section 290-160 of the ITAA 1997 apply to you in the 2016-17 income year under? | A1: Yes

Relevant facts and circumstances: In the 2016-17 income year, you were employed by an entity (the Employer). The Entity made concessional contributions to your complying superannuation fund (the Fund). You received salary and wages from the Entity. In the 2016-17 income year, you received a lump sum payment for outstanding fees from a previous employer (Employer 1) which were incurred for work undertaken in previous income years. In the 2016-17 income year, you also received a lump sum payment for outstanding fees from a second previous employer (Employer 2) which were incurred for work undertaken in previous income years. You made personal contributions to the Fund in the 2016-17 income year. You provided the Fund with a valid notice of intent to claim deduction for contributions. The Fund acknowledged receipt of your notice in which you notified that you would be claiming a deduction for the 2016-17 income year.

Relevant legislative provisions: Income Tax Assessment Act1997 Section 6-5. | Income Tax Assessment Act1997 Subsection 6-5(2). | Income Tax Assessment Act 1997 section 290-150. | 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 1997 section 290-175.

Reasons for decision: Summary: The maximum earnings as employee condition in section 290-160 of the Income Tax Assessment Act 1997 (ITAA 1997) applies to you in the 2016-17 income year as you were engaged in an employment activity in that year. There is no provision which enables the Commissioner to exercise his discretion to waive the conditions in section 290-160 of the ITAA 1997, nor is there discretion which allows the Commissioner to apply the changes to the legislation which commenced on 1 July 2017 retroactively. | Detailed Reasoning - Lump sum payments included in assessable income: Subsection 6-5(2) of the Income Tax Assessment Act (ITAA 1997) provides that, as an Australian resident for tax purposes, your assessable income includes ordinary income derived directly or indirectly from all sources during the income year. Payments of salary and wages are income according to ordinary concepts and are included in assessable income under section 6-5 of the ITAA 1997. Taxation Ruling TR 98/1 considers the appropriate method of determining when income is derived under subsection 6-5(2) of the ITAA 1997 where income is earned in one tax year but received in another. The receipts method is likely to be appropriate to determine: ● income derived by an employee; ● non-business income derived from the provision of knowledge or the exercise of skill possessed by the taxpayer; and ● business income where the income is derived from the provision of knowledge or the exercise of skill possessed by the taxpayer in the provision of services, Paragraph 42 of TR 98/1 states that salary and wages or other employment remuneration is assessable on a receipts basis. This is irrespective of whether that income relates to a past or future income period. Lump sum payments in arrears are payments that relate to an earlier income year or years. Therefore, a lump sum amount of assessable income in arrears will be included in a taxpayer’s taxable income in the year in which it is received even when it relates to an earlier year of income. | Detailed Reasoning - Personal superannuation contributions deductions: A person may claim a deduction for contributions made to their superannuation fund for the purpose of providing a benefit for themselves (or their dependants after death) under section 290-150 of the ITAA 1997. However, subsection 290-150(2) of the ITAA 1997 states that all conditions in sections 290-155, 290-160 (if applicable), 290-165 and 290-170 must also be satisfied for and individual to deduct a contribution made in that income year. | Detailed Reasoning - Maximum earnings as an employee condition: Relevantly, subsection 290-160(1) of the ITAA 1997 provides that the maximum earnings test will apply if, in the income year in which the contributions are made, a person engaged in any of the following activities: ● holding an office or appointment (as a director of a company, for example); ● performing functions and 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). The operation of the maximum earnings as employee test is discussed in Taxation Ruling TR 2010/1 Income tax: superannuation contributions (TR2010/1) . Relevantly, paragraphs 57 to 59 of TR 2010/1 state that: 57. Those persons who are engaged in an 'employment' activity in the income year in which they make a contribution need to meet an earnings test if they are to deduct their contribution. 20 58. 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. 59. 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 SGAA. The term 'engaged' is not defined and takes its ordinary meaning. One of several meanings given to engaged is 'busy or occupied; involved'. Another meaning is 'under an engagement' where the ordinary meaning of 'engagement' is given as 'under an obligation or agreement' Where a person engages in activities as a result of which they are treated as an employee for the purposes of the SGAA, in accordance with subsection 290-160(2) of the ITAA 1997, to deduct the contribution, less than 10% of the total of the following must be attributable to the employment activities: ● assessable income for the income year; ● reportable fringe benefits total for the income year; and ● the total of reportable employer superannuation contributions for the income year. The Commissioner’s view on the application of section 290-160 of the ITAA 1997 is set out in Taxation Ruling TR 2010/1 Income tax: superannuation contributions (TR 2010/1). At paragraphs 63 and 64 of TR 2010/1, the Commissioner states: 63. Assessable income, reportable fringe benefits total and reportable employer superannuation contributions are to be given their statutory meaning. In this regard, a person's assessable income is usually a gross amount worked out ignoring expenses incurred in gaining the income... 64. All amounts that are attributable to the 'employment' activity are taken into account as assessable income in the 10% test. These include ● The salary or wages (as used in its ordinary meaning) from the activity. The total of your salary and wages and reportable superannuation contributions attributable to your employment activity in the 2016-17 income year more than 10% of your total assessable income. Therefore, you do not meet the maximum earnings test as an employee. Where a person does not meet the maximum earnings as employee condition under section 290-160 of the ITAA 1997, there is no discretion in Subdivision 290-C of the ITAA 1997 that allows the Commissioner to treat the person as having met the maximum earnings as employee condition. | Detailed Reasoning - Changes from 1 July 2017: From 1 July 2017 section 290-160 of the ITAA was repealed and is no longer a condition which must be satisfied in order to claim a deduction for a personal superannuation contribution. There is no discretion that allows the Commissioner to apply these changes retrospectively.