Private ruling: Deduction for Personal Superannuation Contribution
Published: October 2011
Ruling period: Year ending 30 June 2012.
Date scheme commenced: 1 July 2011.

Ruling: Q1: Can your client claim a deduction for a personal superannuation contribution to be made in the 2011-12 income year under section 290-150 of the Income Tax Assessment Act 1997 ? | A1: Yes.

Relevant facts and circumstances: Your client is over age 55 but under age 65. Your client has retired from work and is not employed in any capacity. In the 2011-12 income year, your client's income consists of a fortnightly superannuation pension and fortnightly compensation payment. You have advised that you assume that the compensation payments are received by your client fortnightly. Your client will receive no reportable fringe benefits, and no reportable employer superannuation contributions will be made to a complying superannuation fund for your client's benefit, in the 2011-12 income year. Your client intends to make a personal superannuation contribution to a complying self-managed superannuation fund (the fund) before 30 June 2012 and claim a deduction for the contribution. Your client will make the contribution for the purpose of providing superannuation benefits for themselves or for their dependants if they die before or after becoming entitled to these benefits. Your client will provide a notice of intent to claim the deduction to the fund once the contribution has been made. Your client will wait to receive an acknowledgement of receipt of the notice from the fund trustee prior to claiming the deduction. A deduction for the proposed contribution will not add to or create a loss for your client in the 2011-12 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 Section 290-155. | Income Tax Assessment Act 1997 Subsection 290-155(2). | 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 and | Income Tax Assessment Act 1997 Subsection 292-25(2).

Reasons for decision: Summary: Your client will satisfy all the required conditions to claim a deduction for personal superannuation contributions made in the 2011-12 income year. Consequently, your client can claim a deduction for the contribution they will make during this income year. The contribution will be a concessional contribution in this income year. | Detailed Reasoning - Personal superannuation contributions made in the 2011-12 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). Your client intends to make a personal contribution to a superannuation fund (the fund) before 30 June 2012. Your client will make the contribution for the purpose of providing superannuation benefits for themselves or for their dependants if they die before or after becoming entitled to these benefits. 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. The superannuation fund into which your client will make the contribution is a complying superannuation 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 2011-12 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 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 maximum earnings as an employee condition does not apply to 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 has retired from work and is not employed in any capacity. As such your client will not derive any income from an employer during the 2011-12 income year. Based on the facts provided, the maximum earnings as an employee condition does not apply to your client in the 2011-12 income year, because your client will not be engaged in an employment activity during this income year. Consequently, section 290-160 of the ITAA 1997 does not apply to your client 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 2011-12 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 his intention to claim a deduction in respect of the contribution, and he 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 trustee is required to acknowledge your client's 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: · your client is a member of the fund; · 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. Your client will provide a notice of intent to claim the deduction to the fund once the contribution has been made. Your client will wait to receive an acknowledgement of receipt of the notice from the fund trustee prior to claiming the deduction. Provided your client lodges a valid notice of intent with the fund trustee before an income tax return for the 2011-12 income year is lodged or by 30 June 2013, 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: Subsection 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 your client will claim does not exceed the amount specified in your client's section 290-170 notice, your client 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. You have advised that the deduction for the proposed contribution will not add to or create a loss in the 2011-12 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 2011-12 income year for the entire personal contribution they intend to make to the fund in this income year | Detailed Reasoning - Concessional contributions: From 1 July 2007, concessional contributions made to superannuation funds are subject to an annual cap. For a person who is aged 50 or over on 30 June 2012, the annual cap of $50,000 is now a transitional concessional contributions cap. In this case, because your client is over age 50 in the 2011-12 financial year, the transitional concessional contributions cap will apply . This annual cap is not indexed. Concessional contributions include personal contributions claimed as a tax deduction by a person (subsection 292-25(2) of the ITAA 1997). As your client's personal contribution in the 2011-12 income year will be fully tax deductible, the contribution will also be a concessional contribution in this income year.

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