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Edited version of private ruling

Authorisation Number: 1011642960208

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Ruling

Subject: Deductibility of personal superannuation contributions

Is your client eligible to claim a deduction for personal superannuation contributions made to a complying superannuation fund during the 2010-11 income year under section 290-150 of the Income Tax Assessment Act 1997 (ITAA 1997)?

No.

This ruling applies for the following period

For the year ended 30 June 2011

The scheme commenced on

1 July 2010

Relevant facts and circumstances

Your client is a self-employed professional and, in addition to your client's own business activities, your client was also employed with an employer (the employer).

Towards the end of the 2009-10 income year your client gave notice to the employer, as required by the employment contract, of your client's intention to resign. The effective resignation date was at the beginning of the 2010-11 income year.

During the notice period your client was on sick leave and did not perform any work duties during this time.

At the end of the notice period (that is, during the 2010-11 income year) your client terminated employment with the employer.

One week later, a gross payment was made by the employer to your client which included annual leave, long service leave, sick leave and allowances.

You have provided an estimate of your client's total assessable income, exempt income and reportable fringe benefits for the 2010-11 income year. This included a total amount for salary and wages, interest, dividends, gross rental income and gross income from business activities.

Your client intends to make personal contributions in the 2010-11 income year to an Australian complying superannuation fund.

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.

Reasons for decision

Summary

Your client is not entitled to claim a deduction for personal superannuation contributions in the 2010-11 income year because your client has not satisfied the maximum earnings as employee condition. Your client will receive more than 10% of their estimated total assessable income in the 2010-11 income year from employment.

Detailed reasoning

Personal deductible superannuation contributions made in the 2008-09 income year:

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 ITAA 1997. However, the conditions in sections 290-155, 290-160, 290-165 and 290-170 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.

In this case, your client will make personal superannuation contributions in the 2010-11 income year, to an Australian complying superannuation fund. Therefore, this requirement is satisfied.

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) states:

This section applies if:

In the present case, your client was employed with the employer up to and including the beginning of the 2010-11 income year. Therefore, your client is an employee for the purposes of the SGAA during the 2010-11 income year.

Consequently, section 290-160 of the ITAA 1997 applies to your client in the 2010-11 income year.

Where section 290-160 of the ITAA 1997 applies to a person, subsection 290-160(2) states that:

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

A number of decisions of the Administrative Appeals Tribunal (AAT) have considered whether amounts payable to an individual in relation to the termination of the individuals employment are included for the purposes of the maximum earnings as employee condition.

In this case the applicant has referred to a decision made by the AAT. In Re Falson and Federal Commissioner of Taxation 2007 ATC 2438; (2007) 68 ATR 299 (Falson) the AAT concluded that an amount received by an individual, after his retirement but in the same income year as the retirement, was assessable income attributable to his employment activities in that income year. In arriving at this conclusion the AAT declined to follow its previous decision in Re Norris and the Commissioner of Taxation (Cth) 2002 ATC 2091; (2002) 50 ATR 1250.

Consequently, the payment received by your client in the 2010-11 income year is income attributable to your client's employment activities for the purposes of the maximum earnings as employee condition in section 290-160 of the ITAA 1997.

Your client's total assessable income, exempt income and reportable fringe benefits has been estimated for the 2010-11 income year which includes interest, dividends, gross rental income, gross business income and income attributable to employment.

On the basis of the facts provided, your client's total income amount received from activities that result in your client being treated as an employee for the purposes of the SGAA, will be more than 10% of your client's estimated total assessable income for the 2010-11 income year.

Therefore, in this instance, as your client will receive more than 10% of their estimated total assessable income, in that year from employment, your client will not satisfy the requirements set out under section 290-160 of the ITAA 1997.

Please note that the requirement for income to be attributable to your employment activities does not require that the income is the subject of superannuation support. As such, payments that do not attract the superannuation guarantee charge count towards the 10% total.

As the condition in section 290-160 of the ITAA 1997 has not been satisfied, it is not necessary to determine whether the other conditions of 290-165 and 290-170 have been satisfied.

Therefore, your client is not eligible to claim a deduction for personal superannuation contributions made in the 2010-11 income year under section 290-150 of the ITAA 1997.

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