Private ruling: Deductibility of personal superannuation contributions
Published: December 2014
Ruling period: Income year ending 30 June 2015 | Income year ending 30 June 2016
Date scheme commenced: 1 July 2014

Ruling: Q1: Is your client entitled to claim a deduction under section 290-150 of the Income Tax Assessment Act 1997 (ITAA 1997) in respect of proposed personal superannuation contributions to be made during the 2014-15 and 2015-16 income years? | A1: Yes

Relevant facts and circumstances: Your client is a member of a complying superannuation fund (the Fund). The Fund is a constitutionally protected fund (CPF). Your client is also a member of a complying self-managed superannuation fund (the SMSF) In the 2014-15 income year your client intends to make contributions to both the Fund and the SMSF. For the 2014-15 income year, your client states that: • gross salary and wages for that income year will not exceed a certain amount from employment as a part-time employee for which estimates were provided; • fully franked dividends will be received from a company (the Company). In the 2015-16 income year, your client intends to contributions to both the Fund and the SMSF. For the 2015-16 income year, your client states that: • gross salary and wages for that income year will not exceed a certain amount from employment as a part-time employee for which estimates were provided; • fully franked dividends will be received from a company (the Company). Your client is between 50 and 73 years of age.

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 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 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 subsection 290-170(2) | Income Tax Assessment Act 1997 subparagraph 291-25(2)(c)(iii)

Reasons for decision: Summary: Based on the information provided, your client will have satisfied all of the conditions for claiming a deduction for personal superannuation contributions in the 2014-15 and 2015-16 income years given that all the conditions are satisfied. | Detailed Reasoning - Personal deductible 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, the conditions in sections 290-155, 290-160 (if applicable), 290-165 and 290-170 of the ITAA 1997 must also be satisfied for the person to claim the deduction. | Detailed Reasoning - Maximum earnings as an employee condition: Subsection 290-160(1) of the ITAA 1997 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 duties; (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). For those persons who fall under the requirements outlined above, 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 and reportable employer superannuation contributions. This calculation is referred to as the maximum earnings test. The facts provided in this case indicate that the amounts attributable to employment related activities which your client will receive in the 2014-15 and 2015-16 income years will be less than 10% of your client's total assessable income, reportable fringe benefits and reportable employer superannuation contributions in each of those years. Accordingly, your client will satisfy the maximum earnings test under section 290-160 of the ITAA 1997 for the 2014-15 and 2015-16 income years. | 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 the person made the contribution. In this instance, your client intends to make the personal contributions to the Fund and the SMSF. As both the Fund and the SMSF are complying superannuation funds, the condition in section 290-155 of the ITAA 1997 will be satisfied for both the 2014-15 and the 2015-16 income years. | Detailed Reasoning - Age-related conditions: Relevantly, 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. Your client will be under 75 years of age during both the 2014-15 and 2015-16 income years when the contributions will be made. Therefore your client will satisfy the age-related conditions for the contributions in both the 2014-15 and 2015-16 income years. | Detailed Reasoning - Notice of intent to deduct conditions: According to section 290-170 of the ITAA 1997, in order to deduct a contribution, your client is required to provide to the trustees of the Fund and the SMSF a valid notice, in the approved form, of their intention to claim a deduction. The notice must be given by the earlier of: • the date your client lodges their income tax return for the income year in which the contribution is made; or • the end of the following income year. Your client must also be given an acknowledgment of receipt of the notice by the trustees of the Fund and the SMSF. A notice of intent to deduct for your client's contributions will not be valid if one or more of the following conditions in subsection 290-170(2) of the ITAA 1997 are satisfied: (a) the notice is not in respect of the contribution; (b) the notice includes all or part of an amount covered by a previous notice; (c) when you gave the notice: (i) you were not a member of the fund or the holder of the RSA; or (ii) the trustee or RSA provider no longer holds the contribution; or (iii) the trustee or RSA provider has begun to pay a superannuation income stream based in whole or part on the contribution; (d) before you gave the notice: (i) you had made a contributions splitting application... in relation to the contribution; and (ii) the trustee or RSA provider had not rejected the application. In relation to the proposed contributions in the 2014-15 and 2015-16 income years, provided your client: • gives valid notices of intent to the trustees of the Fund and the SMSF within the time frames previously discussed; and • the trustees of the Fund and the SMSF duly acknowledge those notices; it is accepted that section 290-170 of the ITAA will be satisfied. As your client has already satisfied the conditions under sections 290-155, 290-160 and 290-165 of the ITAA 1997, satisfying the conditions under section 290-170 of the ITAA 1997 will allow your client to claim a deduction for the proposed personal superannuation contributions in the 2014-15 and the 2015-16 income years. | 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 year's tax losses and any deductions for farm management losses) from a taxpayer's assessable income. Thus a deduction for personal superannuation contributions cannot add to, or create, a loss. | Detailed Reasoning - Contribution limits: It is noted that the Fund is a constitutionally protected fund (CPF). Subparagraph 291-25(2)(c)(iii) of the ITAA 1997 specifically excludes contributions made to a CPF from the definition of concessional contributions. This means that your client's proposed contributions to the Fund will not be concessional contributions. In view of this, neither the proposed contributions in the 2014-15 income year nor the proposed contributions in the 2015-16 income year will count towards your client's concessional contributions caps for the 2014-15 and 2015-16 income years. It is noted that the SMSF is not a constitutionally protected fund (CPF) and so the normal rules regarding contribution limits will apply. The concessional contributions cap for the 2014-15 income year and later income years is $35,000 if you were aged 49 years or over on the last day of the previous income year. In this case, concessional contributions include all employer superannuation contributions and any personal contributions to the SMSF that are claimed as a tax deduction. Therefore, as your client was over 49 years of age on 30 June 2014, your client will be able to claim a deduction up to the concessional contributions cap of $35,000 in the 2014-15 income year. Similarly, your client will be able to claim a deduction up to the concessional contributions cap of $35,000 in the 2015-16 income year.