ATO Interpretative Decision

ATO ID 2006/304 (Withdrawn)

Income Tax

• This ATO ID is withdrawn because it contains a view in respect of section 82AAC of the Income Tax Assessment Act 1936. That section does not apply for the 2007-08 income year and later income years. This ATO ID continues to be a precedential view in respect of decisions for income years up to, and including the 2006-07 income year. See the replacement provision, section 290-90 of the Income Tax Assessment Act 1997, for the 2007-08 and later income years.
  This document incorporates revisions made since original publication. View its history and amending notices, if applicable.

Issue

Can a person who has a controlling interest in a company claim a deduction under section 82AAC of the Income Tax Assessment Act 1936 (ITAA 1936) for superannuation contributions made by the company on behalf of eligible employees of the company for the 2004-05 income year?

Decision

No. A person who has a controlling interest in a company cannot claim a deduction under section 82AAC of the ITAA 1936 for superannuation contributions made by the company on behalf of eligible employees of the company for the 2004-05 income year. This is because the person did not make the contributions.

Facts

A company employs 20 people who are all eligible employees of the company.

The company makes superannuation contributions of $20,000 during the 2004-05 income year on behalf of its eligible employees to a complying superannuation fund.

A person with a controlling interest in the company is seeking to claim a deduction under section 82AAC of the ITAA 1936 for the contributions made by the company for the income year.

Reasons for Decision

Section 82AAC of the ITAA 1936 sets out the conditions for deductibility of contributions made to a complying superannuation fund for employees. The conditions for deductibility are as follows:

•

the contribution was made to a fund for the purpose of making provision for superannuation benefits for another person (whether or not the benefits are payable to a dependant of the other person in the event of the person's death)

•

the fund is a complying superannuation fund in the income year in which the contribution is made, and

•

one or more of these applies:

(i)

the other person was an eligible employee

(ii)

the contribution reduces the taxpayer's charge percentage in respect of the other person under the Superannuation Guarantee (Administration) Act 1992, and

(iii)

the other person was an employee for the purposes of that Act (subsection 82AAC(1) of the ITAA 1936).

Subsection 82AAA(1) of the ITAA 1936 contains the definition of an 'eligible employee'. According to this provision, an 'eligible employee', in relation to a taxpayer, means a person 'other than the taxpayer' who is:

•

an employee of the taxpayer (subparagraph 82AAA(1)(a)(i) of the ITAA 1936)

•

an employee of a company in which the taxpayer has a controlling interest (subparagraph 82AAA(1)(a)(ii) of the ITAA 1936), and

•

an employee of a company in which the taxpayer is the beneficial owner of shares but in which the taxpayer does not have a controlling interest - but only if the employee is not associated with the taxpayer or there is no mutual agreement under which the employee or a relative of the employee is to make contributions to a superannuation fund for the taxpayer or a relative of the taxpayer (subparagraph 82AAA(1)(a)(iii) of the ITAA 1936).

If the taxpayer is a company, an eligible employee can also be an employee of a person that has a controlling interest in the taxpayer (subparagraph 82AAA(1)(b)(i) of the ITAA 1936) or an employee of a company in which a controlling interest is held by a person who also has a controlling interest in the taxpayer (subparagraph 82AAA(1)(b)(ii) of the ITAA 1936).

In this case, a person with a controlling interest in a company is seeking to claim a deduction under section 82AAC of the ITAA 1936 for contributions made by the company to a complying superannuation fund. The company's employees are considered to be eligible employees of the controlling interest shareholder under subparagraph (a)(ii) of the definition of 'eligible employee' in subsection 82AAA(1) of the ITAA 1936. This means that the controlling interest shareholder would be entitled to claim a deduction for contributions they make on behalf of the company's employees provided that the requirements of section 82AAC have been satisfied.

Under subsection 82AAC(1) of the ITAA 1936, the amount of a contribution made by a taxpayer is allowable as a deduction to the taxpayer for the income year in which the contribution was made. This means that a taxpayer can only claim a deduction under subsection 82AAC(1) for contributions that were actually made by the taxpayer. That is, the taxpayer making the contribution and the taxpayer claiming the deduction under section 82AAC of the 1936 must be one and the same.

The term 'taxpayer' is defined in subsection 6(1) of the ITAA 1936 as 'a person deriving profits or gains of a capital nature.' A 'person' is defined in subsection 6(1) to include a company. As a company is considered to be a taxpayer in its own right for income tax purposes, where a company makes contributions to a fund for its eligible employees, the company will be 'the taxpayer' for the purposes of section 82AAC of the ITAA 1936.

Therefore, as the contributions were made by the company and not the controlling interest shareholder in this instance, and section 82AAC of the ITAA 1936 only allows a taxpayer to claim a deduction for superannuation contributions made by the taxpayer, this means that the controlling interest shareholder is not entitled to claim a deduction for the $20,000 in superannuation contributions made by the company for the 2004-05 income year.

Year of income:  Year ending 30 June 2005

Legislative References:
Income Tax Assessment Act 1936
   subsection 6(1)
   subsection 82AAA(1)
   section 82AAC
   subsection 82AAC(1)

Keywords
Contributions for employees - allowable deductions
Superannuation contributions for employees

Business Line:  Superannuation

Date of publication:  10 November 2006

ISSN: 1445-2782