Private ruling: Deductible superannuation contributions
Published: February 2014
Ruling period: Year ending 30 June 2014.
Date scheme commenced: 1 July 2013.

Ruling: Q1: 1. Will the Trust be entitled to make deductible superannuation contributions in respect of one of the directors of the corporate trustee of the trust? 2. Is your client, who is one of the directors of the corporate trustee of the Trust, entitled to claim a deduction for personal superannuation contributions to a complying superannuation fund? | A1: 1. No. 2. Yes, provided all the conditions have been satisfied.


Relevant legislative provisions: Income Tax Assessment Act 1997 Section 290-60. | Income Tax Assessment Act 1997 Subsection 290-60(1). | Income Tax Assessment Act 1997 Section 290-70. | Income Tax Assessment Act 1997 Section 290-150. | Income Tax Assessment Act 1997 Subsection 290-150(1). | Income Tax Assessment Act 1997 Subsection 290-150(2). | Income Tax Assessment Act 1997 Subsection 290-150(3). | 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 1997 Subsection 290-170(1). | Income Tax Assessment Act 1997 Subsection 290-170(3). | Income Tax Assessment Act 1997 Section 292-15. | Income Tax (Transitional Provisions) Act 1997 Subsection 292-20(2). | Superannuation Guarantee (Administration) Act 1992 Section 12 | Superannuation Guarantee (Administration) Act 1992 Subsection 12(11) | Taxation Administration Act 1953 Subsection 357-110(1)

Reasons for decision: Summary: The Trust will not be able to make a deductible superannuation contribution on behalf of your client as they are not a common law employee of the trust engaged in producing the assessable income of the trust or its business. Your client will be eligible to claim a deduction for the personal superannuation contributions they intend to make to their nominated superannuation fund provided all the conditions have been satisfied. | Detailed Reasoning - Employer superannuation contributions: 1. A trust can only deduct superannuation contributions that are made on behalf of the employees of the trust. Therefore to determine the deductibility of superannuation contributions made by a trust, the rules governing the deductibility of employer superannuation contributions are applied. 2. Subsection 290-60(1) of the Income Tax Assessment Act 1997 (ITAA 1997) states that: You can deduct a contribution you make to a superannuation fund, or an RSA, for the purposes of providing superannuation benefits for another person who is your employee when the contribution is made. (emphasis added) 3. Section 290-70 of the ITAA 1997 sets out the employment activity conditions that a person (the employee) must meet to enable a deduction for an employer contribution to be claimed. One of three conditions must be met in order for the deduction to be claimed. Section 290-70 states: To deduct the contribution, the employee must be: (aa) your employee (within the expanded meaning of employee given by section 12 of the Superannuation Guarantee (Administration) Act 1992 ); or (a) engaged in producing your assessable income; or (b) an Australian resident who is engaged in your business. 4. As your client is a director of the corporate trustee, satisfying the conditions outlined above will deem them to be an employee of the corporate trustee, not the Trust. As such, any contributions made on behalf of directors can only be deducted from the income of the company. 5. For a superannuation contribution made for a director of the corporate trustee to be deducted from the income of a trust, Taxation Ruling 2010/1 (TR 2010/1) applies a different test. Paragraph 243 of TR 2010/1 states the following: A superannuation contribution for a director of the corporate trustee of a trust can only be deducted from the income of the trust if the director is a common law employee of the trust engaged in producing the assessable income of the trust or its business. (emphasis added) 6. The term 'employee' is not defined in the ITAA 1997 and therefore takes its ordinary meaning. The Courts have considered the common law contractual relationship between parties in a variety of legislative contexts, including income tax, industrial relations, payroll tax, vicarious liability, workers compensation and superannuation guarantee. As a result, a substantial and well-established body of case law has developed on the issue. 7. The court's method for establishing a common law relationship involves a thorough assessment of the contractual relationship between the two parties. However, as stated in the facts, the Trust is a passive investment trust and has not had an operational business since the relevant income year. Therefore, in the absence of an operational business or any employment contract between the Trust and your client, your client cannot be found to be a common law employee. 8. Therefore, the Trust will not be able to make deductible superannuation contributions on behalf of your client as your client is not a common law employee of the trust engaged in producing the assessable income of the trust or its business. | 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 Income Tax Assessment Act 1997 (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. | Detailed Reasoning - Complying superannuation fund condition: 11. 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. 12. Provided your client makes a contribution to a complying superannuation fund, this requirement will be satisfied. | Detailed Reasoning - Maximum earnings as an employee condition:: 13. 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 1992), 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 for the income year; and · the total of their reportable employer superannuation contributions for the income year. 14. Subsection 290-160(1) 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). 15. Provided your client does not engage in any of the activities listed in subsection 290-160(1), they will not be considered an employee for the purposes of the SGAA 1992. 16. Even if your client is found to be an employee of the corporate trustee pursuant to the expanded meaning of an employee under section 12 of the SGAA 1992, the facts state that your client will not be in receipt of any income from the corporate trustee for the subsequent income year. Therefore, the 'maximum earnings as an employee' test should not be impacted. 17. Provided this is the case, the maximum earnings as an employee condition under section 290-160 of the ITAA 1997 should not apply to your client for the subsequent income year. | Detailed Reasoning - Age-related conditions:: 18. 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. 19. Your client meets this age-related condition. | Detailed Reasoning - Notice of intent to deduct conditions:: 20. 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. 21. In addition, you must also have been given an acknowledgement of the notice by the trustee of the superannuation fund. 22. A notice will be valid as long as the following conditions apply: · the notice is in respect of the contributions; · the notice is not for an amount covered by a previous notice; · 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 · 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. 23. Provided your client lodges a valid notice under section 290-170 of the ITAA 1997 and the trustees of the fund acknowledge the notice within the specified timeframes, this requirement will be satisfied. | Detailed Reasoning - Deduction limits:: 24. 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:: 25. As your client was over 59 years of age at 30 June 20XX the concessional contributions cap that applies for the subsequent income year is $35,000. Concessional 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 - Conclusion:: 26. Whilst the Trust will not be able to make deductible superannuation contributions on your client's behalf, your client will be able to claim a deduction for personal superannuation contributions they make provided all of the conditions listed above have been satisfied for the subsequent income year.

Relevant facts: 1. The Trust has been a passive investment trust since the relevant income year. | 2. Prior to its sale in the relevant income year, a business operated within the Trust. | 3. Director 1 and Director 2 are the directors of the corporate trustee of the Trust. They are not in receipt of any payment for the services they provide as directors. | 4. The corporate trustee will have no income for the subsequent income year. | 5. For the subsequent income year, the Trust will have interest and dividend income as well as capital gains from the sale of an investment property and shares. | 6. Director 1 and Director 2 are two of three individual beneficiaries of the Trust. | 7. Director 2 (your client) would like the Trust to make deductible superannuation contributions on their behalf of up to the relevant concessional contributions cap for the subsequent income year. | 8. Alternatively, your client would like to make a personal superannuation contribution of up to the relevant concessional contributions cap for the subsequent income year. | 9. Your client is over 60 years of age.