Private ruling: Maximum earnings as an employee condition
Ruling period: Year ending 30 June 2011.
Date scheme commenced: 1 July 2010.

Ruling: Q1: Is exempt income taken into account for the purposes of the maximum earnings as employee condition under section 290-160 of the Income Tax Assessment Act 1997 ? | A1: No.

Relevant facts and circumstances: You are 65 years of age. During the 2010-11 income year you worked on a part-time basis with an employer. You have already rendered several months service with the employer during this income year. You have not performed continuous full-time service for the employer during this income year. During the 2010-11 income year you expect to receive pay and allowances for your part-time service with the employer. Your pay and allowances are exempt from income tax. You have not received, nor expect to receive, any reportable fringe benefits from a government department in relation to your part-time service with the employer during the 2010-11 income year. In addition, the government department does not make any superannuation contributions in respect of your part-time service with the employer. You have estimated your total assessable income and reportable fringe benefits for the 2010-11 income year, which includes a pension, bank interest, dividends and rental income.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 51-5, 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) and Income Tax Assessment Act 1997 Subsection 290-160(2).

Reasons for decision: Summary: The income attributable to your employment activity in the 2010-11 income year is not counted in the maximum earnings test, because it is exempt income. Therefore you will satisfy the maximum earnings as an employee condition in this income year. | Detailed Reasoning - Detailed reasoning: Personal superannuation contributions made in the 2010-11 income year. Subdivision 290-C of the Income Tax Assessment Act 1997 (ITAA 1997) sets out the conditions for claiming a deduction for a personal contribution to a superannuation fund. One of those conditions is the 'maximum earnings as an employee' condition specified in section 290-160 of the ITAA 1997, often referred to as the '10% test'. | 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). Where section 290-160 of the ITAA 1997 applies to a person, subsection 290-160(2) of the ITAA 1997 states that: To deduct the contribution, less than 10% of the total of the following must be attributable to the activities: (a) your assessable income for the income year; (b) your reportable fringe benefits total for the income year; (c) the total of your reportable employer superannuation contributions for the income year. [Emphasis added] As noted in the facts during the 2010-11 income year you worked on a part-time basis with an employer. As such, you are engaged in an employment activity with the employer during this income year. Hence you are an employee for the purposes of the Superannuation Guarantee (Administration) Act 1992 during this income year. Therefore section 290-160 of the ITAA 1997 applies to you in this income year. However, the income you derive from this activity is exempt from income tax under an item of the table in section 51-5 of the ITAA 1997. The Commissioner has issued Taxation Ruling TR 2010/1 which deals with, among other matters, deductions for personal superannuation contributions. At paragraph 62 of TR 2010/1, the Commissioner states: Where the person engages in any 'employment' activities in the income year a deduction can only be claimed where the sum of assessable income , reportable fringe benefits total, and (from 1 July 2009) reportable employer superannuation contributions attributable to the 'employment' activities is less than 10% of the total of the person's assessable income , reportable fringe benefits total and reportable employer superannuation contributions in the income year that the contribution is made. [Emphasis added] The Commissioner also explains, at paragraph 253 of TR 2010/1, that: … The meaning of assessable income is provided in the ITAA 1997 and includes ordinary income and statutory income . [Emphasis added] It is clear from the foregoing that exempt income attributable to an employment activity is not taken into account in the calculation set out in subsection 290-160(2) of the ITAA 1997. Rather, only the income attributable to an employment activity that is assessable to you under the ITAA 1997, is counted in the maximum earnings test. Consequently, the exempt income you receive in respect of your employment activities with the employer is not counted in the maximum earnings as an employee condition under 290-160 of the ITAA 1997.

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