Edited version of private ruling

Authorisation Number: 1011560434049

This edited version of your ruling will be published in the public Register of private binding rulings after 28 days from the issue date of the ruling. The attached private rulings fact sheet has more information.

Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. Contact us at the address given in the fact sheet if you have any concerns.

Ruling

Subject: personal superannuation contribution deduction

Issue 1

Question

Is the income you received from services performed in an overseas country assessable in Australia?

Answer:

Yes.

Issue 2

Question

Can you claim a deduction for personal superannuation contributions for the 2009-10 income year under section 290-150 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer:

No.

This ruling applies for the following period

1 July 2009 to 30 June 2010

The scheme commenced on

1 July 2009

Relevant facts and circumstances

Relevant facts

You are under 65 years of age.

You are an Australian resident for taxation purposes.

You are trained in a profession. You have been a sole trader (consultant) offering services to clients in Australia and overseas.

You provided consulting services to the principal in relation to an overseas project. When you joined the project, you were told that you could bill the university as you do other clients, by way of invoices.

You later found out that the overseas government required people working on the project to have a work permit and pay tax in that country. As a result, you signed two contracts, one with the principal and one with a firm of management consultants. To get paid, you would submit a fortnightly timesheet to the principal, who would then send it on to the management consultants.

Your contract commenced work and ceased five months later.

You were required to work a rotation cycle of four weeks on duty and four weeks off duty, seven days a week.

During your four weeks off period, you undertook other consulting contracts, with other clients.

You were getting paid a stated daily amount in Australian dollars.

You consider that you are a contractor not an employee.

Your income while working in the overseas country is subject to its taxation.

There is a tax treaty between Australia and the overseas country.

You are a member of a superannuation fund (the fund), which is a complying superannuation fund.

In the 2009-10 income year you made a superannuation contribution to the fund for which you intend to claim an income tax deduction.

You completed a notice of intention to claim a deduction form that you lodged with the fund when you made this contribution.

The fund issued you with a written notice acknowledging receipt of your notice of intention to claim a deduction.

The contributions are being made for the purpose of providing superannuation benefits to yourself or your dependants if you die before or after becoming entitled to the benefits.

You have provided an estimate your assessable income, exempt income and reportable fringe benefit amounts for the 2009-10 income year.

A private international company (the company) has a project in the overseas country.

The company engaged an Australian firm to perform the specific work program on its overseas Project.

The Australian firm engaged the principal to deliver part of this program.

A management company was engaged by the principal to organise the work permits and processing of payments through the overseas payroll tax system, when this became a requirement of the overseas government for the project workers.

You signed an offer of employment that was in a letter from the management company.

The conditions of employment were in this letter and included the following:

· the position title and the location

· the contract was for a set period and may be extended by mutual consent

· accommodation and meals to be provided

· rotation was four weeks on and four weeks off. The on duty work was seven days per week, with working hours of up to 16 hours per day, as directed by the principal

· you were required to accept technical direction by the principal's personnel in all phases of on-job site activities

· pay was an all inclusive payment after time sheets were completed by the principal and submitted to the management company's payroll section

· the pay was subject to the overseas country's taxation

· all contracted employees of the management company had to adhere to the policies of the company for the project

· workers compensation, personal accident and medical evacuation insurances were covered by the management company, and

· either party could terminate the employment with five days notice in writing or the management company could terminate the employment in consultation with the principal at 24 hours notice if there was an offence under the overseas country's law or failure to comply with company site rules and regulations;

You signed a contractor agreement with the principal.

The principal contracted your services. Conditions of the contractor agreement included:

· the stated commencement date

· the completion date

· you as the specified person to have responsibility for the contracted services

· you could not substitute other personnel for you without the written consent of the principal

· you were required to report to the representatives of the principal in the manner and at the times specified in the contract

· on expiration or termination of the contract all contract material was to be delivered to the principal and all intellectual property rights were to vest in the principal

· contract material included all and was not limited to equipment, computer software, documents, reports, information and data produced and stored, which was created for the purpose of performing the services

· there was agreement there would be no superannuation, salary, sick, holiday, long service leave or severance payments

· no sickness benefits and WorkCover, and

· either party could terminate the contract immediately upon giving written notice if the other party breached the contract.

The principal transmitted your payments to the management company in Australian dollars. This was subsequently converted into the overseas country's currency and tax was withheld. The management company then transferred the resulting net amount, in Australian dollars, to your bank account.

The principal subsequently invoiced the Australian firm to recoup your contractor fees.

You were flown home to Australia, once the work was completed.

You had no option to extend the original contract, but you were asked to consider a new contract for 2010-11 income year. The new contract would be through the management company rather than the principal.

When you are in Australia you undertake consulting contracts with other clients.

You state during the 2009-10 income year you did not perform any of the following functions:

· the holding of any office or appointment, or

· the performance of any function or duties, or

· the engaging in of any work, or

· the doing of any acts or things;

that may have resulted in you being treated as an 'employee' for Superannuation Guarantee Charge purposes.

No other person or employer has made or will make superannuation contributions, or has an obligation or has made a commitment to make superannuation contributions, to any superannuation fund for the purpose of providing you with superannuation benefits, at any time in respect of the 2009-10 income year.

You remained an Australian resident for income tax purposes when you were working in overseas, where you performed fieldwork.

Some desktop research for the principal was conducted in Australia.

Income derived from the contract was taxed overseas. No allowances were paid in relation to the contract.

You previously had an honorary appointment with the principal. You did not receive any remuneration for these duties and the appointment was terminated once you commenced working for the principal.

You consider you are a contractor and your employment status is not as an employee or officeholder.

Relevant legislative provisions

Income Tax Assessment Act 1936 Section 23AG.

Income Tax Assessment Act 1936 Subsection 23AG(1).

Income Tax Assessment Act 1936 Subsection 23AG(7).

Income Tax Assessment Act 1997 Subsection 6-5(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 Section 290-165.

Income Tax Assessment Act 1997 Section 290-170.

Income Tax Assessment Act 1997 Subsection 290-170(2).

Superannuation Guarantee (Administration) Act 1992 Section 12.

Superannuation Guarantee(Administration) Act 1992 Subsection 12(1).

Superannuation Guarantee(Administration) Act 1992 Subsection 12(2).

Superannuation Guarantee(Administration) Act 1992 Subsection 12(3).

Superannuation Guarantee(Administration) Act 1992 Subsection 12(11).

Reasons for decision

Issue 1

Detailed reasoning

Subsection 6-5(2) of the ITAA 1997 provides that the assessable income of a resident taxpayer includes ordinary income derived directly or indirectly from all sources, whether in or out of Australia, during the income year.

Subsection 23AG(1) of the Income Tax Assessment Act 1936 (ITAA 1936) states that any foreign earnings derived by an Australian resident during a continuous period of foreign service of not less than 91 days, will be exempt from tax in Australia.

The term foreign service is defined in subsection 23AG(7) of the ITAA 1936 as a service in a foreign country as the holder of an office or in the capacity of an employee, and foreign earnings include salary, wages, commission, bonuses or allowances. Therefore to qualify for exemption under section 23AG of the ITAA 1936, the foreign service must be provided while you are either the holder of an office or in the capacity of an employee.

In your case, you provided the services in the overseas country as a contractor. Therefore, you were not providing services as a holder of an office or in the capacity of an employee and you were not considered to be performing foreign services as defined in subsection 23AG(7) of the ITAA 1936.

Consequently, the income you received from overseas is not exempt from tax in Australia under subsection 23AG(1) of the ITAA 1936.

Accordingly, the income you received from services performed in the overseas country is assessable in Australia under subsection 6-5(2) of the ITAA 1997.

Issue 2

Summary

The contribution to the fund is not a tax deductible contribution because even though you have provided a notice to the fund and the fund has acknowledged that notice you do not satisfy the maximum earnings as employee condition.

Detailed reasoning

Deduction for personal superannuation contribution

Under section 290-150 of the ITAA 1997 a taxpayer can claim a deduction for a personal contribution they make to a superannuation fund or an RSA for the purpose of providing superannuation benefits for themselves provided the conditions in sections 290-155, 290-160, 290-165 and 290-170 of the ITAA 1997 are satisfied.

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 contribution is made.

In this case, you satisfied this condition in the 2009-10 income year by making a contribution to the superannuation fund (the fund) that is a complying superannuation fund. Therefore the complying superannuation fund condition is satisfied.

Maximum earnings as employee condition

The condition in section 290-160 of the ITAA 1997 is that if a taxpayer is engaged in certain activities that result in them being treated as an employee for the purposes of the Superannuation Guarantee (Administration) Act 1992 (SGAA) then less than 10% of the total of their assessable income and reportable fringe benefits must be attributable to those activities.

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 appointment;

(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 has not been enacted).

Subsection 290-160(2) of the ITAA 1997 states:

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 year;

(b) your reportable fringe benefits total for the income year.

Where a person is engaged in activities during the income year that would make them an employee for the purposes of the SGAA then they will need to satisfy this section in order to claim a deduction for their personal superannuation contributions. It should be noted that the level of superannuation support by an employer or another person is no longer a relevant factor under this condition.

The Commissioner has issued Taxation Ruling Income tax: superannuation contributions TR 2010/1, which deals with, among other matters, deductions for personal superannuation contributions. At paragraphs 57 and 58 of TR 2010/1, the Commissioner states:

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 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.

Employee at common law

Superannuation Guarantee Ruling SGR 2005/1 entitled Superannuation guarantee: who is an employee? Explains when an individual is considered to be an employee under section 12 of the SGAA. Paragraph 21 of SGR 2005/1 makes the following comments in relation to who is an 'employee':

The SGAA defines 'employee' in section 12. The definition is both a clarifying and extending provision. Subsection 12(1) defines the term 'employee' as having its ordinary meaning - that is, its meaning under common law. If a worker is held to be an employee at common law, then they will be an employee under the SGAA (unless one of the limited exceptions in subsections 12(9A) and (11) applies).

In paragraph 21 of SGR 2005/1 the Commissioner explains that subsection 12(1) of the SGAA 'defines the term "employee" as having its ordinary meaning - that is, its meaning under common law'. The Commissioner further notes, at paragraph 8, that if a worker is held to be an employee at common law, then they will be an employee under the SGAA. In other words, the simple fact of being a common law employee results in an individual being treated as an employee for the purposes of the SGAA.

As discussed above in our consideration of section 23AG of the ITAA 1936, it is not considered that your work in the overseas country resulted in you being an 'employee' under the ordinary meaning of the term. For the purposes of section 290-160 of the ITAA 1997, however, the extended meaning must also be considered.

Employee under the extended meaning in section 12 of the SGAA

The term 'employee' in the SGAA has both its ordinary meaning and an extended meaning (SGR 2005/1, paragraph 1) and section 12 of the SGAA 'is both a clarifying and extending provision' (SGR 2005/1, paragraph 21).

Subsections 12(2) to 12(11) of the SGAA list a number of categories of persons who are also treated as employees'. Persons who come within these provisions are deemed to be employees for the purposes of the SGAA. For example, a person who works under a contract that is wholly or principally for the labour of the person would be deemed an employee for the purposes of the SGAA (subsection 12(3) of the SGAA).

In this respect, the Commissioner notes at paragraph 11 of SGR 2005/1:

For the purposes of subsection 12(3), where the terms of the contract in light of the subsequent conduct of the parties indicate that:

· the individual is remunerated (either wholly or principally) for their personal labour and skills;

· the individual must perform the contractual work personally (there is no right of delegation); and

· the individual is not paid to achieve a result,

the contract is considered to be wholly or principally for the labour of the individual engaged and he or she will be an employee under that subsection.

The extended definition of 'employee' in the SGAA is used in certain circumstances where the individual may not be a common law employee. In this context, the Commissioner explains in paragraph 23 of SGR 2005/1 that:

If it is considered that the relationship at common law is one of principal and independent contractor or the determination of the status of the worker is unclear, the extended definition of 'employee' in the SGAA must be considered.

'Employee' within the ordinary and extended meaning of that expression

There are a number of issues to consider when determining whether a person is an employee or an independent contractor.

The relationship between an employer and employee is a contractual one. It is often referred to as a contract of service. Such a relationship is typically contrasted with the principal/independent contractor relationship that is referred to as a contract for services. An independent contractor typically contracts to achieve a result whereas an employee contracts to provide their labour (typically to enable the employer to achieve a result).

The Courts have considered the common law contractual relationship between parties in a variety of legislative contexts that include income tax, industrial relations, payroll tax, liability, workers compensation and superannuation guarantee. There are often many relevant facts and circumstances that indicate a contract of service, while others point to a contract for services (Commissioner of Payroll Tax (Vic) v. Mary Kay Cosmetics Pty Ltd (1982) 82 ATC 4444; (1982) 13 ATR 360, per Justice Gray).

Whatever the facts of each particular case may be, there is no single feature which is determinative of the contractual relationship; the entire relationship between the parties must be considered to determine whether, on balance, the worker is an employee or an independent contractor (Stevens v. Brodribb Sawmilling Company Pty Ltd (1986) 160 CLR 16; (1986) 63 ALR 513 at CLR 29; ALR 521, per Justice Mason).

Indicators which may be persuasive of an employer/employee relationship are:

· the provision of benefits such as annual, sick and long service leave

· payer prescribed times and location for the performance of work

· payer's discretion in respect of task allocation and termination of engagement

· the worker uses the assets or materials provided by the payer, or is reimbursed or paid compensatory allowance for expenses incurred in the use of their own assets and materials, and

· the method of remuneration.

The list is not exhaustive and it must be emphasised that there is no standard set of conditions applicable to an employee and another to an independent contractor.

It might be argued that the parties' intention in forming a contract is not subjective, but an objective one; that is, the task is not to discover the intention of the parties involved but to decide what each could reasonably conclude from the actions of the other. An observation made by Justice Isaacs in Curtis v. The Perth and Fremantle Bottle Exchange Co Ltd (1914) 18 CLR 17; (1914) 20 ALR 313; [1914] HCA 21:

Where parties enter into a bargain with one another whereby certain rights and obligations are created, they cannot by a mere consensual label alter the inherent character of the relations they have actually called into existence. Many cases have arisen where Courts have disregarded such labels, because in law they were wrong, and have looked beneath them to the real substance.

Therefore, simply defining someone as a contractor does not necessarily lead to the conclusion that the individual is providing services as part of an operation of their own independent business.

Control test

A prominent factor in determining the nature of the relationship between parties is the degree of control which the employer has over the employee, as it goes to the source of the view of the master-servant relationship. The degree of control varies on the type of job, as the increasing usage of skilled labour has seen a consequential reduction in supervisory functions. The issue of control does not always rely on whether the employer exercises it, although this is clearly relevant, but rather whether they have the right to exercise it.

The degree of control will vary according to the type of work, but the general rule is that the greater the obligation on a person to obey the orders of another as to the manner of the performance of work, the more conclusive it will be that the worker is the employee of the principal/payer.

It is not necessary for the employer to exercise day to day control over the worker. What is important is that the employer has the legal right of control. As stated by Justice Dixon in Humberstone v. Northern Timber Mills (1949) 79 CLR 389; (1949) 23 ALJ 584; [1950] VLR 44; [1949] ALR 985:

The question is not whether in practice the work was done subject to direction and control exercised by an actual supervision or whether an actual supervision was possible but whether ultimate authority over the man in performance of his work resided in the employer so that he was subject to the latter's orders and directions.

The typical test for determining a common law relationship is to consider if the worker is told what work needs to be done, when it is to be done, how it is to be done and where it is to be done.

You agreed to work for a set period, for the principal. It is also noted that you did not perform the same sort of work for any other client until you were back in Australia.

You were required to work four weeks on and four weeks off seven days a week as directed by the principal. The principal could direct you to work for up to 16 hours per day.

It was a requirement that you accept technical direction from the principal's personnel in all phases of on-job site activities

You had no control over where you performed the work. You were required to work at the sites designated by the principal, and you could not therefore perform the work elsewhere.

The principal expected you to perform all of the work personally, and you could not engage the help of other people in performing the work without the express written consent of the principal.

Taking all of the above into account, the Commissioner considers that the principal had ultimate right of control over when, how and where the work was required to be done.

Therefore, the conclusion is that the principal had the right to exercise control over your work.

Integration test

The integration test is primarily concerned with establishing whether the individual providing the service/s does so as an individual carrying on a business of their own or as an integral part of another's business organisation.

Whether the worker operates on their own account or as part of a business of the payer is sometimes viewed as a consideration of whether the worker would be viewed by a third party as carrying on their enterprises as independent contractors and whether they could be expected to generate goodwill in their own right.

In the case of Stevenson, Jordan and Harrison v. MacDonald and Evans [1952] 1 TLR 101; (1952) 69 RPC 10, Lord Justice Denning said:

...under a contract of service a man is employed as part of the business, and his work is done as an integral part of the business; whereas, under a contract for services, his work, although done for the business, is not integrated into it but is only accessory to it.

The skills involved in carrying out the work are also a useful guide in determining whether a person is carrying on their own business or not. The provision of professional skill or skilled labour may imply that the contractor is able to make an independent career by selling that skill. In the case of a contractor with an independent career, it may be implied that the contractor is able to conduct their own business using those skills.

The factors to be taken into account in deciding whether the integration test is satisfied include:

· whether the relationship between the worker and payer is an ongoing one

· whether the worker's activities are effectively restricted to providing services to only one master, and

· whether the worker will generally profit commercially from sound management in the performance of his or her tasks (that is, whether the worker is so inextricably integrated in the business' organisation that any benefit from the worker's performance would flow to the business organisation).

As noted above, you were engaged to work for a period. During the time you worked for the principal you did not perform the same sort of work for any other businesses.

The fact that you also have your own business does not alter the character of the work that you performed for the principal.

Based on the facts of this case, it is not evident that you were operating your own business in the performance of the work undertaken for the principal. It is likely that other entities were more likely to view you as an employee of the principal rather than being engaged as an independent contractor.

Therefore, while it is evident that you did operate your own independent business, the Commissioner considers that during the period you were integrated into the principal's operations as an employee because of the terms under which you were expected to work. Further, it is considered that third party observers would most likely have viewed you as a representative of the principal rather than someone running their own enterprise.

The findings of this test support the view that there was an employer/employee relationship for the period you worked for the principal.

Delegation test

The unlimited power to delegate or subcontract work is a significant factor in deciding whether the worker is an employee or an independent contractor. If an individual has unlimited power to delegate the work to others (with or without the approval or consent of the principal), this is a strong indication that the person is being engaged as an independent contractor.

Delegation is not simply the distribution of the task from one employee to another or the ability to swap shifts or request a colleague to perform some of the duties on their behalf. It is the right for a worker to employ their own means to achieve a specified outcome for the other party of the contract. Practically speaking, we consider that professional independence of the worker will be a critical consideration and whether the worker would be responsible for paying others who perform some of the work on their behalf.

In the present case the principal expected you to perform all of the work personally, and you were not able to engage the help of other people in performing the work for the principal, unless you had the express written consent of the principal. Clearly you did not have the power to delegate the work, and you did not have the right to pay another person to perform the work under the agreement.

You have stated that you only could only take on other work when you were in Australia. You state that you have the right to substitute another person to do the work but would only do so in consultation with the principal. All of these factors indicate that you do not have an effective right to delegate the work as you are not free to engage whoever you wish to do the work.

Therefore the findings of this test support the view that there was an employer/employee relationship for the period you worked for the principal.

Risk test

Whether the worker is contractually obliged to accept liability for the cost, in terms of time or money, for rectification of fault or defective work is a relevant consideration in determining if that worker should be regarded as an employee or independent contractor. Commonly, an independent contractor would solely bear the risk and responsibility of liability for their work if it does not meet an agreed standard and would be required to either rectify this defective work in their own time or at their own expense.

An employee on the other hand, would bear no such responsibility and the liability for any defective work of an employee, either to a third person or otherwise, would fall to the employer in terms of cost for rectification.

In the present case it was specifically stated you were fully and personally responsible for due care, skill and diligence in completing the contract to the reasonable satisfaction of the principal. It is also noted that you were responsible for your own insurances, including professional indemnity insurance, under this contract. However the management company, not the principal, covered you for Workers Compensation and personal Accident Insurance during the employment period.

Therefore, the findings of this test support the view that you were an independent contractor for the period you worked for the principal.

Capital expenses test

A strong factor indicating that a worker is operating as an independent contractor is where they are required to provide a significant amount of capital investment, and to personally bear the cost of providing and maintaining capital items, where those capital items are integral or necessary to the performance of the worker's services under the contract. The significance of this indicator is considered greatly reduced where that capital item is merely incidental to the provision of service under the contract of engagement.

A worker who has been integrated as an employee into the business is more likely to be provided with the tools and equipment required for his work, by the employer.

The higher the degree to which a worker is exposed to the risk of commercial loss (and the chance for commercial profit) the more he or she is likely to be regarded as being independent. The higher the proportion of the gross income which the worker is required to expend in deriving that income, and the more substantial the assets which the worker brings to his or her tasks, the more likely it is that the contract is for services.

In the case of Queensland Stations Pty Ltd v. Commissioner of Taxation (Cth) (1945) 70 CLR 539; (1945) 8 ATD 30; [1945] ALR 273; (1945) 19 ALJ 253, it was found that the droving contractor was an independent contractor because he was required to find and pay for all the men, plant, horses and rations necessary and sufficient for the task. Their own means were employed to accomplish a result.

The weight or emphasis given to this indicator depends on the particular circumstances and the context and nature of the contractual work.

In your case, you were engaged to complete specified tasks, as required by the principal. The principal engaged you to carry out the specified tasks because of your specialist knowledge. While you may have used some your own equipment used you also used the principal's equipment to perform the work.

It is stated in the contract all of the equipment, software, reports created for the purpose of performing the services remained the principal's assets at the end of the contract. Therefore, you could not perform the work without using the contract materials (the principal's assets), and hence you could not perform the work without using equipment which was not ultimately owned by you.

However, you were ultimately engaged for your specialist professional labour and skills not because of any equipment that you own.

Although not decisive on its own, this would support the view that the principal engaged you as an employee.

Results test

A contract to produce a given result is one in which the focus is on what ultimate result the contract requires, rather than what must be provided during the performance of the required tasks. Satisfactory completion of the specified services is the result for which both parties have agreed.

The meaning of the phrase 'producing a result' means the performance of a service by one party for another where the first mentioned party is free to employ his/her own means to achieve the contractually specified outcome. The essence of the contract has to be to achieve a result and not to do the work. That is, a payment becomes payable when, and only when, the contractual conditions have been fulfilled.

While the notion of payment for result is expected to be a contract for services, it is not necessarily inconsistent with a contract of service. The High Court in Hollis v. Vabu [2001] HCA 44; (2001) 106 IR 80; (2001) 75 ALJR 1356; (2001) 181 ALR 263; (2001) 2001 ATC 4508; (2001) 33 MVR 399; (2001) 47 ATR 559; [2001] Aust Torts Reports 81-615; (2001) 50 AILR 4-476; (2001) 207 CLR 21, considered that the payment to the bicycle couriers per delivery, rather than per time period engaged, was a natural means to remunerate employees whose sole purpose is to perform deliveries. Further, the Full Court of the Supreme Court of South Australia in the case of the Commissioner of State Taxation v. The Roy Morgan Research Centre Pty Ltd [2004] SASC 288; (2004) 2004 ATC 4933; (2004) 90 SASR 12 found that interviewers who were only paid on the completion of each assignment, not on an hourly basis, were employees and not independent contractors.

You were paid a daily rate, which was agreed with the principal before you entered into the agreement. You were not paid any allowances, and you received monthly payments under the agreement.

You were engaged to complete specific tasks by the principal. However, you were paid on a daily basis to complete those tasks rather than a set amount on completion of the entire task by a set time. This indicates that you were not paid by the principal to achieve a result and thus suggests that an employer/employee relationship existed for the period you worked for the principal.

Other indicators

In addition to the above, other indicators of the nature of the contractual relationship have been variously stated and have been added to from time to time. Those suggesting an employer-employee relationship include the right to suspend or dismiss the person engaged, the right to the exclusive services of the person engaged, provision of benefits such as annual, sick and long service leave and the provision of other benefits prescribed under an award for employees.

In the present case it is noted that the principal did not provide you with sick leave, annual leave, long service leave or worker's compensation cover. This would indicate that you were not an employee of the principal.

On the other hand you did not perform work of a similar nature for any other business during the period you worked for the principal. This, as noted above, would suggest that you were an employee of the principal for this period.

You had tax withheld from the payments you received under the agreement, as would any employee in a normal employment situation. A business entity would normally be paid the full amount of the contract and make its own arrangement to pay the tax in the income.

You were an employee of the principal for the purposes of the SGAA

Your agreement is considered to be a contract that was wholly or principally for your labour and skills within the meaning of subsection 12(3) of the SGAA.

Weighing up all the factors discussed above and taking into account the totality of the relationship it is considered that you were, during the period you were engaged by the principal, an employee. You were engaged in a contract of service with the principal and not a contract for services. As such, you were an employee for the purposes of the SGAA during this period.

From the facts, it is considered that in the 2009-10 income year you were an employee of the principal for the purposes of section 12 of the SGAA. Therefore you were engaged in eligible employment with the principal during this income year.

When activities result in a taxpayer being treated as an employee for the purposes of the SGAA 1992, then the total of that taxpayer's assessable income and reportable fringe benefits attributable to the activities must be less than 10% of their total assessable income and reportable fringe benefits for the income year in order for that taxpayer to claim a deduction for a personal contribution (subsection 290-160(2) of the ITAA 1997).

As you are deemed to be an employee rather than a contractor, your income would be considered employment income under paragraph 66 of TR 2010/1 as follows:

However, the employment income of an Australian resident employed overseas by a foreign employer will be counted in the maximum earnings test if the income is assessable income.

Assessable income

The facts of this case state that you expected to receive the certain amounts of assessable income in the 2009-10 income year:

Your assessable income and reportable fringe benefits attributable to employment income for the 2009-10 income year will be more than the 10% threshold.

Consequently in this instance, you will not satisfy the requirements that are prescribed under section 290-160 of the ITAA 1997.

Age related conditions

Section 290-165 of the ITAA 1997 requires a taxpayer to have made the contribution before the day that is 28 days after the end of the month in which they turn 75 years of age.

This condition is satisfied as you were under this age for the entire 2009-10 income year.

Notice of intent to deduct conditions

Section 290-170 of the ITAA 1997 requires you to provide a valid notice of your intention to claim the deduction to the trustee of the superannuation fund (the trustee) of the provider of an RSA (the provider). 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 acknowledgement of the notice by the trustee or the provider.

You have provided a written notice to the fund stating your intention to claim a deduction for the personal superannuation contribution. You have received a written notice from the fund acknowledging your intention to claim a deduction for the personal superannuation contribution. Therefore, this condition under section 290-170 of the ITAA 1997 is satisfied.

Conclusion

Based on the above, as you would be considered an employee under the extended meaning of an employee, you do not satisfy all of the requirements to claim a deduction under section 290-150 of the ITAA 1997 for the personal superannuation contribution you made for the 2009-10 income year.

Copyright notice

© Australian Taxation Office for the Commonwealth of Australia

You are free to copy, adapt, modify, transmit and distribute material on this website as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products).