Edited version of private ruling

Authorisation Number: 1011572880037

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Ruling

Subject: Deduction for personal superannuation contributions

Question

Can you claim a deduction in respect of a personal superannuation contribution for the 2010-11 income year under section 290-150 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer

Yes

This ruling applies for the following period

Year ending 30 June 2011

The scheme commenced on

1 July 2010

Relevant facts

You were employed during the 2009-10 income year and ceased the employment during the same year.

In the 2010-11 income year you received a lump sum for annual leave and long service leave, in relation to your employment in the 2009-10 income year.

You will not be employed during the 2010-11 income year and will be a self-funded retiree receiving non-employment related income.

In the 2010-11 income year, you intend to make personal superannuation contributions to a complying superannuation fund and intend to claim a deduction for these contributions.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 26-55

Income Tax Assessment Act 1997 Subsection 26-55(2).

Income Tax Assessment Act 1997 Section 290-150.

Income Tax Assessment Act 1997 Subsection 290-150(1).

Income Tax Assessment Act 1997 Subsection 290-150(2).

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.

Income Tax (Transitional Provisions) Act 1997 Section 292-20.

Income Tax (Transitional Provisions) Act 1997 Subsection 292-20(2).

Superannuation Guarantee (Administration) Act 1992 Section 12.

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

Summary

Subject to you meeting the complying superannuation fund condition, age-related condition, and notice of intent to deduct condition, you will be entitled to claim a deduction for the personal superannuation contributions you intend to make to a complying superannuation fund in the 2010-11 income year.

Detailed reasoning

Personal deductible superannuation contributions:

From 1 July 2007, 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 Income Tax Assessment Act 1997 (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.

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.

Maximum earnings as an employee condition:

The condition in section 290-160 of the ITAA 1997 requires that if a taxpayer is engaged in any 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) 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 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).

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.

This means that in order to satisfy the condition set out under section 290-160 of the ITAA 1997, your total assessable income and reportable fringe benefits attributable to your employment must be less than 10% of your total assessable income and reportable fringe benefits for the 2010-11 income year. This is known as the maximum earnings test.

You have advised you will not be employed in the 2010-11 income year. This being the case, you are not an employee for the purposes of the SGAA and section 290-160 of the ITAA 1997 will not apply to you for the 2010-11 income year.

In the 2010-11 income year, you received a lump sum amount for annual leave and long service leave relating to your employment in the 2009-10 income year. However, although you received the lump sum payment in the 2010-11 income year, this payment relates to your employment in the 2009-10 income year which ceased in the 2009-10 income year. Accordingly, this amount is not subject to the maximum earnings test.

Age-related conditions:

Under subsection 290-165(2) of the ITAA 1997 eligibility 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.

Notice of intent to deduct conditions:

Section 290-170 of the ITAA 1997 requires a person to provide a valid notice of their intention to claim the deduction to the trustee of their superannuation fund. The notice must be given before the earlier of:

· the date you lodge your income tax return for the income year in which the contribution was made; or

· the end of the income year following the year in which the contribution was made.

In addition, you must also have been given an acknowledgement of the notice by the trustee of the superannuation fund.

A notice will be valid as long as the following conditions apply:

· the notice is in respect of the contributions;

· the notice is not for an amount covered by a previous notice;

· at the time when the notice is given:

· you are a member of the fund or the holder of the retirement savings account (RSA);

· the trustee or RSA provider holds the contribution (for example, a notice will not be valid if a partial roll-over of the superannuation benefit which includes the contribution covered in the notice has been made);

· the trustee or RSA provider has not begun to pay a superannuation income stream based on the contribution; or

· before the notice is given:

· a contributions splitting application has not been made in relation to the contribution; and;

· the trustee or RSA provider has not rejected the application.

Deduction limits:

From 1 July 2007 the previous age based limits on deductions for personal superannuation contributions have been abolished. As a result a person can claim a full deduction for the amount of the contribution made.

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 years 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.

Contribution limits:

Concessional contributions made to superannuation funds in the 2010-11 income year are subject to an annual cap of $25,000. Concessional contributions include employer contributions (including contributions made under a salary sacrifice arrangement) and personal contributions claimed as a tax deduction by a person.

A person will be taxed on concessional contributions over the $25,000 cap at a rate of 31.5%. The superannuation fund can be asked to release money to pay this excess contributions tax.

Transitional concessional contributions cap:

Between 1 July 2007 and 30 June 2012, a transitional concessional contributions cap will apply. The annual cap is $50,000 in the 2010-11 income year for people aged 50 or over (subsection 292-20(2) of the Income Tax (Transitional Provisions) Act 1997).

Conclusion:

Subject to you meeting the complying superannuation condition, age-related condition and notice of intent to deduct condition, you will be entitled to claim a deduction under section 290-150 of the ITAA 1997 for the personal superannuation contributions you intend to make to a complying superannuation fund in the 2010-11 income year.

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