Private ruling: Deduction for Personal Superannuation Contribution
Published: April 2013
Ruling period: Year ending 30 June 2013.
Date scheme commenced: 1 July 2012.

Ruling: Q1: Can your client claim a deduction for a personal superannuation contribution to be made in the relevant income year under section 290-150 of the Income Tax Assessment Act 1997? | A1: Yes.

Relevant facts and circumstances: Your client, who is over age 55 but under age 65, is self employed. You have advised that for the relevant income year, your client will not generate income as an employee (including reportable fringe benefits and reportable employer superannuation contributions) that exceeds 10% of your client's assessable income for the income year. In this respect, you have also advised that your client will satisfy the maximum earnings as an employee condition in this income year. Your client is a member of a complying superannuation fund (the fund). Your client intends to make a personal contribution to the fund in the relevant income year. Your client intends to provide a written notice to the fund trustee, stating their intent to claim a deduction for this contribution. Your client also intends to receive a notice for the relevant income year from the fund trustee, acknowledging receipt of your client's notice of intent in respect of this contribution. You have advised that a deduction for the proposed contribution will not add to or create a loss for your client in the relevant income year. You have also advised the amount of the deduction your client will claim for the contribution in this 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 Subparagraph 292-90(2)(c)(iv), | Income Tax Assessment Act 1997 Subsection 995-1(1) and | 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 to be made in the relevant income year, as all the conditions for claiming the deduction will be satisfied. | Detailed Reasoning - Personal superannuation contributions made in the 2012-13 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, that fund must be a complying superannuation fund for the income year in which you made the contribution. In this instance, your client proposes to make a personal contribution to a complying superannuation fund (the 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 relevant 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 57 of TR 2010/1 the Commissioner states that those persons who are engaged in an employment activity in the income year in which they make a contribution need to meet the maximum earnings test if they are to deduct their contribution. The Commissioner further states in paragraph 58 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. | Detailed Reasoning - Section 290-160 of the ITAA 1997 will not prevent a deduction for your client: 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 is self employed. You have advised that it is not expected that your client will be engaged in an employment activity during the relevant income year. In this respect, you have also advised that, during this income year, your client will not generate income as an employee (including reportable fringe benefits and reportable employer superannuation contributions) that exceeds 10% of your client's assessable income for this income year. Based on the information you have provided in your application, it is accepted that section 290-160 of the ITAA 1997 will not operate to prevent your client from claiming a deduction for the proposed contribution your client will make to the fund in this 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 your client will be under age 75 at all times during the 2012-13 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 an intention to claim a deduction in respect of the contribution, and your client 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 the notice to the fund trustee by the earlier of the date your client lodges an 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. You have advised that your client will provide a valid notice of an 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 this notice of intent for the contribution. You assert that your client will meet the requirements of section 290-170 of ITAA 1997 once these actions have been taken. Provided your client lodges a valid notice of intent with the fund trustee before an income tax return for the relevant income year is lodged or by the end of the subsequent financial year, whichever is the earlier, and the trustee duly acknowledges this 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 the amount of the deduction your client intends to claim in respect of the contribution. Provided this amount does not exceed the deductible amount specified in your client's 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 relevant 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 relevant income year for the entire personal contribution they intend to make to the fund in this income year. | Detailed Reasoning - Further issues for consideration: It is noted that the fund is a constitutionally protected fund (CPF). Therefore, subparagraph 292-25(2)(c)(iii) of the ITAA 1997 operates to exclude the proposed contribution from being a concessional contribution in the 2012-13 financial year. As a result, the contribution will not be counted towards your client's annual concessional contributions cap for this financial year. Rather, to the extent that the proposed contribution forms part of the contributions segment of your client's superannuation interest in the CPF (which includes personal undeducted contributions), it will be a non-concessional contribution, and it will be counted towards your client's non-concessional contributions cap for the financial year in which the contribution is made to the fund. For the relevant financial year, the annual non-concessional contributions cap is $150,000.