Private ruling: Deductibility of personal superannuation contributions
Date of advice: 30 September 2015
Published: September 2015
Ruling period: Year ending 30 June 20ZZ
Date scheme commenced: 1 July 20YY

Ruling: Q1: Can you claim a deduction for a personal superannuation contribution to be made in the 20YY-ZZ income year under section 290-150 of the Income Tax Assessment Act 1997 (ITAA 1997)? | A1: Yes.

Relevant facts and circumstances: You are between 49 and 75 years of age. Since 20AA you have been in receipt of workers' compensation payments. In the 20VV-WW income year, a letter from your employer advised you that your employment was terminated due to a work related illness. You advise that you have not been employed since your termination. You were deemed to have a total and permanent disability by a state appointed medical officer. Several years later another state appointed medical officer deemed that your disability was chronic and permanent. You are a member of a complying superannuation fund (the Fund). You intend to make a personal contribution of $ to the Fund in the 20YY-ZZ income year. You are not intending to seek employment during the remainder of the 20YY-ZZ income year. Your anticipated income in the 20YY-ZZ income year will be: • WorkCover payments $[amount] • Rental income $[amount] • Income from shares $[amount] You confirm that a valid notice under section 290-170 of the ITAA 1997 will be lodged with the trustee of the Fund and it is anticipated that the trustee of the Fund will acknowledge that notice. You confirm that the deduction claimed under section 290-150 of the ITAA 1997 will not add to or create a loss.

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 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 Subsection 995-1(1).

Reasons for decision: Summary: You are eligible to claim a deduction for personal superannuation contributions made in the 20YY-ZZ income year provided: (a) all the conditions for claiming the deductions will be satisfied; and (b) the deduction for the contributions for that income year does not add to or create a loss. | Detailed Reasoning - Personal superannuation contributions: 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 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 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 you propose to make personal contributions to a complying superannuation fund. Therefore, you will satisfy this condition. | Detailed Reasoning - Maximum earnings as an employee condition - 10% test: 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, 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'. Where a person is engaged in activities during the income year that would make them an employee for the purposes of the SGAA then they will need to satisfy the maximum earnings test in order to claim a deduction for their personal superannuation contributions. It should be noted that the level of superannuation support by an employer or another person is no longer a relevant factor under this condition. In Taxation Ruling TR 2010/1 the Commissioner discusses the operation of the maximum earnings test. At paragraph 58 the Commissioner states: 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. 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. Furthermore, the Commissioner has given an example which refers to the 'maximum earnings test'. At paragraphs 88 and 89 of TR 2010/1 the Commissioner states: 88. Caitlin terminates her employment with Bling Pty Ltd on 30 June 2009 and was paid unused long service leave and annual leave on 3 July 2009. Caitlin made a contribution of $5,000 to her complying superannuation fund on 9 July 2009. Caitlin was not engaged in any employment activities for the 2009-10 income year. 89. As Caitlin was not engaged in any employment activities in the 2009-10 income year, she does not need to meet the earnings test in relation to her $5,000 contribution. Due to a work related illness, your employment was terminated in the 20VV-WW income year and you have not been employed since that date. The facts provided in this case indicate that you will not engage in any activities in the 20YY-ZZ income year that would make you an employee for the purposes of the SGAA. Accordingly, you will not be subject to the maximum earnings test under section 290-160 of the ITAA 1997 in the 20YY-ZZ 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 you will be under age 75 during 20YY-ZZ income year when you intend to make the contributions to the Fund, you will satisfy the age-related conditions. | Detailed Reasoning - Notice of intent to deduct conditions: Section 290-170 of the ITAA 1997 provides that you must give to the trustee of the complying superannuation fund (the fund trustee) a valid notice, in the approved form, of your intention to claim a deduction in respect of the contribution, and you 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 you must give the notice to the fund trustee by the earlier of the date of your income tax return being lodged 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 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: • you are a member of the fund or the fund is a successor fund as defined in subsection 995-1(1) of the ITAA 1997; • 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. The notice of intent to deduct conditions under section 290-170 of the ITAA 1997 will be satisfied for the 20YY-ZZincome year provided you lodge a valid notice of intent with the Fund trustee before the earlier of: (a) your income tax return for the 20YY-ZZ income year is lodged; or (b) 30 June 2017; and (c) the trustee duly acknowledges your notice. | 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 you will claim does not exceed the amount specified in your section 290-170 notice, you 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. As you have advised that your deduction for the contributions will not add to or create a loss in the 20YY-ZZ income year, this requirement will be satisfied. | Detailed Reasoning - Contribution limits: The concessional contributions cap for you is $ for the 20YY-ZZ income year. 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: As you will satisfy the required conditions in sections 290-155, 290-165 and 290-170 of the ITAA 1997, you will be entitled to claim a deduction of up to the concessional contributions cap of $ for concessional superannuation contributions made in the 20YY-ZZ income year provided the deduction does not add to or create a tax loss in that income year.