Private ruling: The deductibility of personal contributions
Published: October 2014
Date scheme commenced: 1 July 2014.

Ruling: Q1: Can the taxpayer claim a deduction for personal superannuation contributions to be made to a complying superannuation fund in the 2014-15 income year under section 290-150 of the Income Tax Assessment Act 1997 (ITAA 1997)? | A1: Yes. This review applies for the following period Year ending 30 June 2015.

Relevant facts and circumstances: The Taxpayer has a 50% interest in a partnership (the Partnership) which owns and leases a number of retail shops (the Properties) to various businesses. The Taxpayer manages the Properties without the assistance of any agents. The management duties include banking, paying accounts, correspondence with tenants, attending to repairs and maintenance, inspections and preparation of leasing arrangements. Aside from managing the Properties, the Taxpayer will not be employed in any capacity during the 2014-15 income year. The Taxpayer can work up to 30 hours per week in the management of the Properties, and will work more than 40 hours within a 30 day period throughout the 2014-15 income year. The Taxpayer intends to make personal superannuation contributions of less than $40,000 into a complying superannuation fund (the Fund) during the 2014-15 income year. The Taxpayer intends to claim a personal superannuation contribution deduction for the 2014-15 income year. The Taxpayer will give the trustee of the Fund a valid notice in the approved form of their intent to claim a tax deduction for the personal contributions made in the 2014-15 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 Paragraph 292-85(2)(c). | Superannuation Industry (Supervision) Regulations 1994 Subregulation 1.03(1) | Superannuation Industry (Supervision) Regulations 1994 Subregulation 7.01(3) | Superannuation Industry (Supervision) Regulations 1994 Regulation 7.04 | Superannuation Industry (Supervision) Regulations 1994 Subregulation 7.04(1)

Reasons for decision: Summary: Based on the information provided, the Taxpayer may claim a deduction for personal superannuation contributions of less than $40,000 made in the 2014-15 income year. | Detailed Reasoning - Deducting personal contributions: Under section 290-150 of the ITAA 1997, a person can claim a deduction for personal contributions made to a superannuation fund for the purpose of providing superannuation benefits for themselves. 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, the Taxpayer proposes to make personal contributions to a complying superannuation fund. Therefore, the Taxpayer 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) of the ITAA 1997): • 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). Where the person engages in any 'employment' activities in the income year a deduction 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 the their assessable income, reportable fringe benefits total and reportable employer superannuation contributions in the income year that the contribution is made. 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. Superannuation Guarantee Ruling SGR 2005/1 (SGR 2005/1) explains when an individual is considered to be an 'employee' for the purposes of the SGAA. At paragraph 99, SGR 2005/1 states: A partner in a partnership cannot be an employee of the partnership. It is impossible for a person to meet the common law definition of employee as discussed above and still have the powers and responsibilities of a partner. In particular, the degree of control over an individual required for the individual to be an employee at common law is incompatible with the degree of independence that a partner has in relation to the conduct of the partnership enterprise. It is also impossible in our view for a partner to enter into a contract with the partnership 'wholly or principally for the partner's labour' within the meaning of subsection 12(3). The Taxpayer is a partner in the Partnership and will receive income only from the Partnership during the 2014-15 income year. As the Taxpayer is not an employee of the Partnership, the Taxpayer will not be engaged in an employment activity during the 2014-15 income year. Therefore, section 290-160 of the ITAA 1997 does not apply to the Taxpayer in that income year. | 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 the Taxpayer will be under age 75 during the 2014-15 income year (at the time they intend to make the proposed contribution to the Fund), the Taxpayer will satisfy the age-related conditions. | Detailed Reasoning - Notice of intent to deduct conditions: Section 290-170 of the ITAA 1997 provides that the Taxpayer must give to the trustee of the Fund (the Fund Trustee) a valid notice, in the approved form, of their intention to claim a deduction in respect of the contribution In accordance with subsection 290-170(1) of the ITAA 1997, the notice must be given to the Fund Trustee by the earlier of the date of the Taxpayer's income tax return being lodged or the end of the income year following the year in which the contribution was made. In addition, subsection 290-170(3) of the ITAA 1997 requires the Fund Trustee to acknowledge the Taxpayer's notice without delay. In accordance with subsection 290-170(2) of the ITAA 1997, 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: i. the Taxpayer is a member of the fund; ii. 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); iii. the Fund Trustee has not begun to pay a superannuation income stream based on the contribution; or • before the notice is given: i. a contributions splitting application has not been made in relation to the contribution; and ii. the Fund Trustee has not rejected the application. You have advised that a valid notice will be provided to the Fund Trustee of the Taxpayer's intention to claim a deduction in respect of the proposed personal contributions. Provided the Taxpayer lodges a valid notice of intent with the Fund Trustee before the Taxpayer's income tax return for the 2014-15 income year is lodged or by 30 June 2016, whichever is the earlier, and the trustee duly acknowledges the Taxpayer's 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. Provided the amount of the deduction the Taxpayer will claim does not exceed the amount specified in their section 290-170 notice, the Taxpayer will also satisfy this requirement. | 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 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. | Detailed Reasoning - Conclusion: As the Taxpayer will satisfy all the required conditions in Subdivision 290-C of the ITAA 1997, the Taxpayer can claim a deduction in the 2014-15 income year for personal contribution they intend to make to the Fund in that income year. | Detailed Reasoning - Other relevant comments: A regulated superannuation fund may accept contributions only in accordance with regulation 7.04 of the Superannuation Industry (Supervision) Regulations 1994 (SISR). In accordance with subregulation 7.04(1) of the SISR, where a person is age 65 and over but under 75, a regulated superannuation fund may accept member contributions made by the member if the member has been gainfully employed on at least a part-time basis during the financial year in which the contributions are made, and the contributions are received on or before the 28 th day after the end of the month in which the member turns 75. In this case, the Taxpayer is over 65 and under 75 years old. Therefore, the Fund Trustee may accept the Taxpayer's contribution only if the Taxpayer is 'gainfully employed' on at least a part-time basis during the financial year in which the contribution is made. Subregulation 1.03(1) of the SISR states that 'gainfully employed' means employed or self-employed for gain or reward in any business, trade, profession, vocation, calling, occupation or employment. Gain or reward is the receipt of remuneration such as wages, business income, bonuses and commissions, in return for personal exertion in these activities. In accordance with subregulation 7.01(3) of the SISR, a person is gainfully employed on a part-time basis during a financial year if the person was gainfully employed for at least 40 hours in a period of not more than 30 consecutive days in that financial year. It is stated that the Taxpayer is required to manage the affairs of the Partnership. As such, income received from the Partnership activities is considered to be gain or reward in return for the Taxpayer's personal exertion in these activities. You have also advised that the Taxpayer will be engaged in managing the Partnership business for at least 40 hours in a period of not more than 30 consecutive days in that financial year. Therefore, the Taxpayer is considered to be gainfully employed on at least a part-time basis during the 2014-15 income year. As a result, the Fund Trustee may accept member contributions made by the Taxpayer in 2014-15 financial year.