Private ruling: Personal deductible contributions
Date of advice: 14 December 2016
Published: May 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), will you be subject to the maximum earnings test under section 290-160 of the ITAA 1997 in the 2016-17 income year? | A1: Yes.

Relevant facts and circumstances: You are an employee of a company (Entity A). You are engaged by Entity B and have advised that you declare income derived from Entity B as business income in your income tax return for the relevant income year. You are also engaged by Entity C and have advised that you declare income derived from Entity C as personal services income (PSI) in your income tax return for the relevant income year. Entity C has advised that they treat you as an employee for superannuation guarantee purposes and make superannuation contributions on your behalf at the rate of 9.5%. You will be less than 75 years old in the 201X-1X income year.

Relevant legislative provisions: 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 Section 290-170 | Superannuation Guarantee (Administration) Act 1992 Section 12 | Superannuation Guarantee (Administration) Act 1992 Subsection 12(3) All references are to the ITAA 1997 unless otherwise indicated.

Reasons for decision: Summary: You will be subject to the maximum earnings test in section 290-160 because you are engaged in employment activities during the 201X-1X income year. Therefore, income derived from Entity A and Entity C will count towards income attributable to 'employment activity'. | Detailed Reasoning - Personal superannuation contributions made in the 201X-1X income year: An individual can claim a deduction for personal contributions made to a superannuation fund for the purpose of providing superannuation benefits for themselves (or their dependants after their death) under section 290-150. However, subsection 290-150(2) provides that all the conditions in sections 290-155, 290-160 (if applicable), 290-165 and 290-170 must also be satisfied before the person can claim a deduction for the contributions made in that income year. For the purposes of this case, and to address the specific question you have raised, attention is focussed on section 290-160. | Detailed Reasoning - Maximum earnings as an employee condition: Subsection 290-160(1) 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) prescribes that a deduction for personal contributions can only be claimed where the sum of assessable income, reportable fringe benefits total, and reportable employer superannuation contributions attributable to the 'employment' activities is less than 10% of: ● their assessable income for the income year; ● their reportable fringe benefits total for the income year; and ● the total of their reportable employer superannuation contributions for the income year. The above calculation is referred to as the maximum earnings test. The operation of the maximum earnings test is discussed in Taxation Ruling TR 2010/1 Income tax: superannuation contributions (TR 2010/1) . Relevantly, paragraphs 59 and 60 state that: 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'. 60. Consequently, a person need not be physically engaged in the activity. For example: ● a person who is engaged under a contract wholly or principally for labour is engaged in the activity throughout the duration of the contract. As reiterated in paragraph 59 of TR2010/1, where a person is employed at any time during the year, they are subject to the maximum earnings test. You have advised that you are an employee of Entity A. Therefore, you are subject to the maximum earnings test under section 290-160. Further, whilst it is acknowledged that your relationship with Entity C is not defined as that of an 'employee' of Entity C, you are however, engaged in activities that result in you being treated as an employee of Entity C for the purposes of the Superannuation Guarantee (Administration) Act 1992 (SGAA). The extended definition of employee in subsection 12(3) of the SGAA provides that a person that works under a contract that is wholly or principally for the labour of the person, is an employee of the other party to the contract. This is also confirmed by the fact that Entity C is making superannuation contributions on your behalf at the rate of 9.5%. The critical factor here is that you are an employee of Entity C for the purposes of the SGAA in the relevant income year. The income that you receive from Entity C is therefore, attributable to 'employment activity' and is counted towards the maximum earnings test under section 290-160. It is important to note that whether an individual is subject to the PSI measures is distinct from, and separate to, the determination of whether that individual is an employee within the meaning of section 12 of the SGAA. Therefore, as you are subject to the maximum earnings test under section 290-160, your income received from Entity A and Entity C will constitute income that is attributable to employment activities. | Detailed Reasoning - Other conditions for deducting personal contributions: If you intend to claim a deduction for a personal superannuation contribution you make in the 201X-1X income year, you will also need to satisfy all the conditions in sections 290-155, 290-165 and 290-170. Section 290-155 requires that the relevant contribution is made to a complying superannuation fund. Section 290-165 requires for you to be less than 75 years old when you make the contribution. Section 290-170 requires you to give a valid notice of your intention to claim the deduction to the trustee of the relevant superannuation fund; and that the trustee gives you an acknowledgment of the receipt of the notice.