Private ruling: The deductibility of personal superannuation contributions
Published: September 2014
Ruling period: The year ended 30 June 2015.
Date scheme commenced: 1 July 2014.

Ruling: Q1: Will the maximum earnings as employee condition under section 290-160 of the Income Tax Assessment Act 1997 (ITAA 1997) apply to you in the 2014-15 income year? | A1: No. | Q2: Will you be entitled to claim a deduction under section 290-155 of the ITAA 1997 in the 2014-15 income year? | A2: Yes.

Relevant facts and circumstances: You accepted a voluntary redundancy offer from your employer and your employment termination date was in the 2013-2014 income year. In the 2014-15 income year, you received a payment from your employer being your salary up to your employment termination date. In the 2014-15 income year, you received a bona fide redundancy payment. In the 2014-15 income year, you received an employment termination payment consisting of unused long service leave and unused annual leave. In the 2014-15 income year, you will be receiving assessable Commonwealth Superannuation Scheme indexed pension payments. In the 2014-15 income year, you will not be engaging or performing any activity that will make you an employee for SG purposes. In the 2014-15 income year, you intend to make a one-off personal superannuation contribution to your complying superannuation fund (the Fund). You will be between 49 years of age and 75 years of age during the 2014-15 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 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 290-170(2)(c)(iii) | Superannuation Guarantee (Administration) Act 1992 (SGAA)

Reasons for decision: Summary: You will not be subject to the maximum earnings test under section 290-160 of the ITAA 1997 because you will not be engaged in any employment activities during the 2014-15 income year. You will satisfy the conditions under sections 290-155 and 290-165 of the ITAA 1997 and will not be required to satisfy section 290-160 of the ITAA 1997. Therefore, you will be entitled to claim a deduction for personal superannuation contributions made in the 2014-15 income year provided that you satisfy the notice of intent to deduct conditions under section 290-170 of the ITAA 1997. | 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, 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 total and reportable employer superannuation contributions. This calculation is referred to as the maximum earnings test. The operation of the maximum earnings test is discussed in Taxation Ruling TR 2010/1 (TR 2010/1) entitled ' Income tax: superannuation contributions.' Relevantly, paragraphs 58 and 59 state that: 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. 59. A person will be engaged in an 'employment' activity if they are engaged in an activity in the income year that results in them being treated as an employee for the purposes of the SGAA. The term 'engaged' is not defined and takes its ordinary meaning. One of several meanings given to engaged is 'busy or occupied; involved'. Another meaning is 'under an engagement' where the ordinary meaning of 'engagement' is given as 'under an obligation or agreement' Furthermore, TR 2010/1 provides an example which refers to the 'maximum earnings test'. Paragraphs 88 and 89 of TR 2010/1 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. In this case, you ceased employment with your employer in the relevant income year. You have advised that you will not be engaging in activities during the 2014-15 income year that would make you an employee for the purposes of the Superannuation Guarantee (Administration) Act 1992 (SGAA) Even though you received payments from your previous employer during the 2014-15 income year, because you ceased employment prior to the commencement of the 2014-15 income year, you are not considered to be engaged in an employment activity for the 2014-15 income year. The pension income you will be receiving from the Commonwealth Superannuation Scheme will not be income that is attributable to employment as an employee. Therefore, you have not engaged in any employment activities for the 2014-15 income year thus far. You will not subject to the maximum earnings test under section 290-160 of the ITAA 1997 if, for the remainder of the year, you do not engage in any activities that would make you an employee for the purposes of the SGAA. | 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 case, you have advised that you intend to make a personal superannuation contribution to a complying superannuation fund. Therefore the complying superannuation fund condition will be satisfied. | 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 75 years of age in the 2014-15 income year, you will satisfy the age-related conditions. | Detailed Reasoning - Notice of intent to deduct conditions: According to section 290-170 of the ITAA 1997, in order to deduct a contribution, you are required to provide to the trustee of the Fund a valid notice, in the approved form, of your intention to claim a deduction. The notice must be given by the earlier of the date you lodge your income tax return or the end of the income year following the year in which the contribution was made. You must also have been given an acknowledgment of receipt of the notice by the trustee of the Fund. A notice of intent 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 this case, the receipt of pension income from the Commonwealth Superannuation Scheme in the 2014-15 income year will not cause you to fail to satisfy the validity condition in section 290-170(2)(c)(iii). This income stream is derived from a separate superannuation provider and does not contain any part of your proposed contribution. If you can provide the trustee of the Fund a valid notice of intent to deduct before the due date and are given acknowledgement of receipt of the notice by the trustee of the Fund, you will have satisfied the conditions under section 290-170 of the ITAA 1997. As you will have already satisfied the conditions under sections 290-155 and 290-165 of the ITAA 1997 and will not be required to satisfy section 290-160 of the ITAA 1997, satisfying the conditions under section 290-170 of the ITAA 1997 will allow you to claim a deduction for personal superannuation contributions made in the 2014-15 income year. | Detailed Reasoning - Deduction limits: A person can claim a full deduction for the amount of the contribution made up to the concessional contributions cap. However, 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: The concessional contributions cap for the 2014-15 income year is $35,000 if you are aged 49 years or over on the last day of the previous 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. Therefore, as you were over 49 years of age on 30 June 2014, you will be able to claim a deduction up to the concessional contributions cap of $35,000 .