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Ruling

Subject: Deduction for Personal Superannuation Contribution

Question

Can your client claim a deduction in respect of a personal superannuation contribution for the 2009-10 income year under section 290-150 of the Income Tax Assessment Act 1997?

Answer

No.

This ruling applies for the following period:

Year ended 30 June 2010.

The scheme commences on:

1 July 2009.

Relevant facts and circumstances

Your client is over age 55 but under age 65.

During the 2009-10 income year your client was engaged by a company in an executive position.

The company is not a resident of Australia for tax purposes.

Your client, who is an Australian resident, provided their services to the company outside Australia.

The company does not provide your client with any superannuation support.

In the 2009-10 income year, your client derived gross foreign income from the services they provided to the company. Payment was made by the company into your client's Australian bank account. You have advised that this assessable income relates solely to the services your client provided to the foreign employer.

Your client's assessable income for the 2009-10 income year also includes an amount of gross interest.

Your client received no reportable fringe benefits and had no reportable employer superannuation contributions in the 2009-10 income year.

Late in the 2009-10 income year, your client made a personal superannuation contribution to a complying self-managed superannuation fund (the fund).

Your client made the personal contribution to the fund on the advice of a financial planner for the purpose of providing superannuation benefits for your client or for your client's dependants if your client dies before or after becoming entitled to these benefits.

Your client intends to claim a deduction for the full amount of the personal contribution. You have advised that the deduction will not create or increase a loss in the 2009-10 income year.

You have advised that your client will provide a notice of intent to claim a deduction in respect of the contribution to the fund trustee within the required timeframes specified in section 290-170 of the Income Tax Assessment Act 1997, and that your client anticipates receiving an acknowledgment of the notice of intent from the fund trustee.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 290-150,

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 Paragraph 290-160(1)(a),

Income Tax Assessment Act 1997 Paragraph 290-160(1)(b),

Income Tax Assessment Act 1997 Subsection 290-160(2),

Income Tax Assessment Act 1997 Section 290-165 and

Income Tax Assessment Act 1997 Section 290-170.

Reasons for decision

Summary

A person can claim a deduction in respect of personal superannuation contributions provided all the legislative requirements are met. One requirement is the 'maximum earnings as an employee' condition.

Your client's foreign employment income assessable in Australia is greater than 10% of your client's total assessable income, reportable fringe benefits and reportable employer superannuation contributions for the 2009-10 income year. Therefore the 'maximum earnings as an employee' condition is not satisfied. Consequently your client is not entitled to claim a deduction for any personal contributions made in this income year.

Detailed reasoning

Personal superannuation contributions made in the 2009-10 income year

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).

Your client made a personal superannuation contribution to a complying self-managed superannuation fund (the fund) during the 2009-10 income year, in order to obtain superannuation benefits.

However, subsection 290-150(2) of the ITAA 1997 provides that the conditions in sections 290-155, 290-160, 290-165 and 290-170 must all be satisfied before a person can claim a deduction for the contributions made in that income year.

One of these conditions is the 'maximum earnings as an employee' condition specified in section 290-160 of the ITAA 1997, often referred to as the '10% test'.

Maximum earnings as an employee condition

Subsection 290-160(1) of the ITAA 1997 operates to apply the maximum earnings as an employee condition only if, in the income year in which the contribution is made, the person is engaged in any of the following activities (paragraph 290-160(1)(a)):

· holding an office or appointment (for example, a director of a company);

· performing functions or duties;

· engaging in work;

· doing acts or things; and

· the activities result in that person being treated as an employee for the purposes of the Superannuation Guarantee (Administration) Act 1992 (SGAA).

For those persons who are engaged in any 'employment' activities in the 2009-10 income year, subsection 290-160(2) of the ITAA 1997 prescribes that a deduction for personal contributions can only be claimed where the sum of their:

· assessable income

· reportable fringe benefits total and

· reportable employer superannuation contributions

· attributable to the 'employment' activities is less than 10% of the total of that person's assessable income, reportable fringe benefits total and reportable employer superannuation contributions. The term 'reportable employer superannuation contributions' includes salary sacrifice contributions made for the person's benefit in that income year. This calculation is also referred to as the 'maximum earnings test'.

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

At paragraph 251 of TR 2010/1, the Commissioner states:

In the application of the maximum earnings test, the relevant 'employment' activity need not be an activity in Australia. The SGAA does not contain any territorial nexus that limits which individuals will be treated as employees for the purposes of the SGAA. The practical limits of the application of the SGAA are created through the modification of the meaning of salary or wages in section 27 of the SGAA. That section ensures that amounts received, for example, by a non-Australian resident employee working outside Australia or an Australian resident employed by a non-resident employer to work outside Australia are not taken into account as salary or wages when working out whether an employer has an individual superannuation guarantee shortfall for an employee.

The Commissioner also explains, at paragraph 262 of TR 2010/1, that:

… 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.

You assert that TR 2010/1 is non-determinative in relation to the maximum earnings test and overseas employment income (assessable in Australia). However, it is noted that in the Compendium of Comments to TR 2010/1 the Commissioner states that paragraph 262 covers the situation of an Australian resident employed overseas by a foreign employer.

The maximum earnings as an employee condition applies to your client

The employment activity condition outlined in subsection 290-160(1) of the ITAA 1997 has two parts. To satisfy this condition, therefore, a taxpayer must both:

· engage in any of the employment activities specified in paragraph 290-160(1)(a) of the ITAA 1997, and

· as a result be treated as an employee for the purposes of the SGAA, as specified in paragraph 290-160(1)(b) of the ITAA 1997.

As noted in the facts, during the 2009-10 income year your client worked overseas for the company in an executive position. Your client is an Australian resident and the company is a non-resident employer. Thus your client was employed overseas by the foreign employer during this income year.

You consider that had your client performed services for the company in Australia, your client would have been an employee for the purposes of the SGAA.

However as noted above, your client's employment activity with the foreign employer need not be an activity in Australia. The facts show that your client was engaged in an employment activity that resulted in them being treated as an employee during this income year. As such, your client was an employee for the purposes of the SGAA in this income year.

Therefore the maximum earnings as an employee condition applies to your client in this income year. Consequently, your client will need to satisfy the 10% test prescribed in subsection 290-160(2) of the ITAA 1997 in order to claim a deduction for the personal contribution.

In applying this test, your client's employment income from the company will be counted in the maximum earnings test if it is assessable in Australia.

The foreign income attributable to your client's employment activity

During this income year your client derived gross foreign income from the employment activity with the company. You have advised that this employment income is assessable in Australia. You have also stated that this foreign income relates solely to the services as an employee your client provided to the foreign employer.

Because the income attributable to the foreign employment activity is assessable to your client in Australia, this foreign employment income is counted in the maximum earnings test.

This amount represents your client's assessable income attributable to the foreign employment activity in the 2009-10 income year. This amount is also greater than 10% of your client's assessable income. As noted in the facts, your client received no reportable fringe benefits, and no reportable employer superannuation contributions were made for your client's benefit to a complying superannuation fund, in this income year.

Therefore your client's total assessable income attributable to the employment activity is greater than 10% of the total of your client's assessable income, reportable fringe benefits and reportable employer superannuation contributions for this income year.

As a result your client does not satisfy the 10% test set out in subsection 290-160(2) of the ITAA 1997. Consequently, the condition in section 290-160 is not satisfied.

Conclusion

Your client does not satisfy all the required conditions in subdivision 290-C of the ITAA 1997 to claim a deduction in respect of the personal contribution they made to the fund in the 2009-10 income year.

Specifically, your client does not satisfy the maximum earnings as an employee condition prescribed in section 290-160 of the ITAA 1997. As this condition has not been satisfied, it is not necessary to determine whether the other conditions of 290-155, 290-165 and 290-170 of the ITAA 1997 have been satisfied.

As noted previously, the conditions in sections 290-155, 290-160, 290-165 and 290-170 of the ITAA 1997 must all be satisfied before your client can claim a deduction for the contribution made in that income year.

Consequently, your client is not entitled to claim a deduction in respect of the personal contribution they made during this income year.

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