Private ruling: Deductibility of personal superannuation contributions
Date of advice: 13 December 2016
Published: January 2017
Ruling period: Income year ending 30 June 2017
Date scheme commenced: 1 July 2016.

Ruling: Q1: For the purposes of section 290-150 of the Income Tax Assessment Act 1997 (ITAA 1997), does the maximum earnings as an employee condition in section 290-160 of the ITAA 1997 apply to a person (the Taxpayer) in the 2016-17 income year? | A1: No

Relevant facts and circumstances: The Taxpayer intends to deduct personal superannuation contributions made to a complying superannuation fund in the 2016-17 income year. The Taxpayer is medically unfit for work, and is not engaged in any employment activities. The Taxpayer receives a monthly payment from an income protection policy and will do so until they reaches the age of 65. In the 2016-17 income year, the Taxpayer’s assessable income will consist of income protection payments and a small amount of investment income. The Taxpayer will give to the trustee of the relevant superannuation fund a valid notice of their intent to deduct contributions and will obtain an acknowledgment of the notice from the trustee. The Taxpayer is less than 75 years of age.

Relevant legislative provisions: 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 section 290-165 | Income Tax Assessment Act 1997 subsection 290-160(1) | Income Tax Assessment Act 1997 section 290-170

Reasons for decision: Summary: The maximum earnings as employee condition in section 290-160 of the ITAA 1997 will not apply to the Taxpayer in the 2016-17 income year because the Taxpayer will not be engaged in an employment activity in that year. | Detailed Reasoning - Detailed Reasoning: A person may claim a deduction for contributions made to their superannuation fund for the purpose of providing a benefit for themselves (or their dependants after their death) under section 290-150 of the ITAA 1997. However, subsection 290-150(2) of the ITAA 1997 states that all the conditions in sections 290-155, 290-160 (if applicable), 290-165 and 290-170 must also be satisfied for an individual to deduct a contribution made in that income year. | Detailed Reasoning - Maximum earnings as an employee condition: Relevantly, subsection 290-160(1) of the ITAA 1997 provides that the maximum earnings test will apply if, in the income year in which the contributions are made, a person is engaged in any of the following activities: ● holding an office or appointment (as a director of a company, for example); ● performing functions and duties; ● engaging in work; ● doing acts or things; and ● the activities result in that person being treated as an employee for the purposes of Superannuation Guarantee (Administration) Act 1992 (SGAA). The operation of the maximum earnings as an employee test is discussed in Taxation Ruling TR 2010/1 Income tax: superannuation contributions (TR 2010/1). Relevantly, paragraphs 57 and 58 of TR 2010/1 state that: 57. Those persons who are engaged in an ‘employment’ activity in the income year in which they make a contribution need to meet an earnings test if they are to deduct their contribution. 58. Those person 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. Income protection payments are meant to compensation a person for the loss of employment income and, as such, are similar in nature to the workers’ compensation payments. However, while in receipt of these payments, the Taxpayer is not, and will not be, engaged in any activities that would result in them being treated as an employee for the purposes of the SGAA. Therefore, the maximum earnings test as an employee condition in section 290-160 of the ITAA 1997 will not apply to the Taxpayer in the 2016-17 income year.