Edited version of private ruling

Authorisation Number: 1011648735734

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Ruling

Subject: personal superannuation contribution deduction

Can your client claim a deduction under section 290-150 of the Income Tax Assessment Act 1997 (ITAA 1997) for personal superannuation contributions made to a superannuation fund for the 2009-10 income year, whilst they are an Australian resident working outside Australia for a non-resident employer?

No.

This ruling applies for the following period

Year ended 30 June 2010

The scheme commenced on

1 July 2009

Relevant facts and circumstances

This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.

Your client is an Australian resident for taxation purposes.

Your client is a member of a superannuation fund (the Fund).

Your client was employed in an overseas country by the the employer.

You state your client received employment income from the employer but no provision for superannuation.

The foreign employment income is taxed in the overseas country.

Your client made a personal superannuation contribution to the Fund in the 2009-10 income year.

In the 2009-10 income year your client's income consisted of bank interest and gross salary from your client's employer.

Relevant legislative provisions

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 Subsection 290-160(2)

Income Tax Assessment Act 1936 Paragraph 82AAS(2)(a)

Superannuation Guarantee (Administration) Act 1992 Section 12.

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

Reasons for decision

These reasons for decision accompany the Notice of private ruling.

While these reasons are not part of the private ruling, we provide them to help you to understand how we reached our decision.

Summary

The contribution made to the Fund in the 2009-10 income year, is not a tax deductible contribution because your client does 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 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.

In particular, you are concerned that your client will not meet the requirement in section 290-160 of the ITAA 1997.

Maximum earnings as employee condition

Where a person is engaged in activities during the income year that would make them an employee for the purposes of the Superannuation Guarantee (Administration) Act 1992 (SGAA) then they will need to satisfy this section in order to claim a deduction for their personal superannuation contributions.

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 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.

Superannuation Guarantee Ruling SGR 2005/1 (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).

Subsection 12(11) of the SGAA operates to exclude from the definition of employee persons who are paid to do work wholly or principally of a domestic or private nature of no more than 30 hours per week.

The Commissioner has issued Taxation Ruling TR 2010/1 Income tax: superannuation contributions (TR 2010/1), which deals with, among other matters, deductions for personal superannuation contributions. At paragraph 57 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.

When activities result in a taxpayer being treated as an employee for the purposes of the SGAA, 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. (This is referred to as the ten percent rule).

Your client was employed and receiving salary for their employment in the overseas country. Therefore, your client was engaged in work or other activities that normally result in their being treated as an employee for the purposes of the SGAA.

You have stated that your client was not entitled to receive any superannuation support from the employer in this foreign country. However, while this factor was relevant in respect of deductions allowable prior to 1 July 2007, under former paragraph 82AAS(2)(a) of the Income Tax Assessment Act 1936, the level of superannuation support by an employer or another person is no longer a relevant factor under this condition.

As your client is an employee, the income from the overseas country is considered employment income, as detailed under paragraph 66 of TR 2010/1:

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.

Therefore, in order for your client to deduct personal superannuation contributions, their assessable income and reportable fringe benefits that is attributable to employment must be less than 10% of their assessable income and reportable fringe benefits for the income year (subsection 290-160(2) of the ITAA 1997).

Assessable income

The facts of this case state that your client expected to receive assessable income consisting of foreign employment income and bank interest in the 2009-10 income year:

Therefore, because of the size of your client's foreign income your client's assessable income and reportable fringe benefits attributable to employment income for the 2009-10 income year will exceed the 10% threshold. Consequently, in this instance, your client will not satisfy the requirements that are prescribed under section 290-160 of the ITAA 1997.

Conclusion

As your client has not satisfied the maximum earnings requirement, it is not necessary to verify that they have satisfied the other conditions, which are:

· the complying superannuation fund condition in section 290-155 of the ITAA 1997

· the age related conditions in section 290-165 of the ITAA 1997, and

· the notice of intent to deduct conditions in section 290-170 of the ITAA 1997.

Your client does not satisfy all of the requirements to claim a deduction under section 290-150 of the ITAA 1997 for the personal superannuation contribution of $50,000 they made for the 2009-10 income year.

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