Edited version of private ruling

Authorisation Number: 1011837151053

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Ruling

Subject: Deduction for personal superannuation contributions

Question:

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

Advice/Answers:

No

This ruling applies for the following period:

1 July 2010 to 30 June 2011

The scheme commenced on:

1 July 2010

Relevant facts:

Your client is over 50 years of age.

Your client is an Australian resident who has worked overseas on a contract basis for 12 months which ended on 31 March 2011.

For the year ended 30 June 2011 your client has earned around $100,000 from this contract to be declared as 'foreign employment income' (Item 20) on his income tax return.

Your client has received no superannuation support while on the overseas contract.

Since returning from overseas your client is employed with an Australian employer.

From 1 April 2011 your client has 'salary sacrificed' his salary from the Australian employer which has resulted in super contributions of approximately $17,000.

Your client would like to make a personal superannuation contribution of $50,000 to his own Self Managed Superannuation Fund. This fund is a complying superannuation fund.

The contribution will be made in order to obtain superannuation benefits for your client or his dependants in the event of his death.

Your client intends to claim a deduction of $50,000 for his personal superannuation contributions in the 2011 income year as he is over 50.

Your client's total assessable income for the 2011 financial year is around $100,000. This is solely made up of the foreign employment income.

Your client has stated they have no exempt income or reportable fringe benefits in the 2011 income year.

Assumptions:

None

Relevant legislative provisions:

Income Tax Assessment Act 1997 Section 26-55.

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 290-170

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

Income Tax Assessment Act 1997 Section 292-15

Income Tax Assessment Act 1997 Section 292-20

Income Tax Assessment Act 1997 Section 292-25

Superannuation Guarantee (Administration) Act 1992 Section 12

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

Superannuation Guarantee (Administration) Act 1992 Section 19

Superannuation Guarantee (Administration) Act 1992 Paragraph 27(1)(c)

Reasons for decision

Summary

On the basis of the information provided, your client will not be eligible to claim a deduction for the personal superannuation contributions made to his superannuation fund as the 'maximum earnings as employee condition' under section 290-160 of the ITAA 1997 for deductibility will not be met for the 2010-11 income year.

Detailed reasoning

A person can claim a deduction for personal contributions made to a superannuation fund for the purpose of providing superannuation benefits for themselves (or their dependants after their death) 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. These will each be considered.

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 have advised your client intends to contribute $50,000 to a complying superannuation fund in the 2010-11 income year. Therefore in the absence of evidence to the contrary, this condition will be 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 the following must be attributable to those activities:

· their assessable income for the income year,

· their reportable fringe benefits total for the income year

· the total of their reportable employer superannuation contributions for the income year

Subsection 290-160(1) states:

This section applies if:

· in the income year in which you make the contribution, you engage in any of these activities:

· holding an office or appointment;

· performing functions or appointment;

· engaging in work;

· doing acts or things; and

· 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 had not been enacted).

Subsection 12(1) of the SGAA provides that the terms 'employer' and 'employee' have their ordinary meaning. Under subsection 12(1), a worker will be an employee for superannuation guarantee (SG) purposes if he or she is a common law employee.

However for the purposes of the SGAA, subsections 12(2) to 12(11) expand the meaning of those terms and make particular provision to avoid doubt as to the status of certain persons.

In particular, subsection 12(3) of the SGAA expands the ordinary meaning of the term employee to include persons who are contracted wholly or principally for their labour. If a person works under such a contract, then the person is an employee of the other party to the contract.

Your client has engaged in two activities for the 2011 income year:

An overseas contract for his services which resulted in income to be assessed as 'foreign employment income'; and

Employment with the Queensland Fire and Rescue Service

Both activities clearly result in your client being treated as an employee for the purposes of the Superannuation Guarantee (Administration) Act 1992 which means both activities are 'employment' activities.

The maximum earnings as an employee condition

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.

Taxation Ruling TR 2010/1 titled 'Income tax: superannuation contributions' (TR 2010/1) explains some aspects of the rules in Division 290 of the ITAA 1997 that apply if a superannuation contribution for a personal contribution is to be deducted. Paragraphs 64 to 66 are as follows:

64. All amounts that are attributable to the 'employment' activity are taken into account as assessable income in the 10% test. These include:

· the salary or wages (as used in its ordinary meaning) from the activity;

· allowances and other payments earned by an employee;

· the other payments, such as commission, director's remuneration and contract payments, that are treated as salary or wages by section 11 of the SGAA for those persons who engage in an 'employment' activity in a capacity other than a common law employee;

· an employment termination payment received by a person in consequence of the termination of their employment; and

· workers' compensation and like payments made because of injury or illness received by a person while holding the employment, office or appointment the performance of which gave rise to the entitlement to the compensation payments.

65. In the application of the maximum earnings test, the relevant 'employment' activity need not be an activity in Australia. For a non-resident, the income attributable to employment outside Australia is not assessable income in Australia and so will not be counted in the maximum earnings test. A non-resident with Australian sourced income that is not attributable to 'employment' activities may therefore be able to deduct a personal superannuation contribution made to an Australian superannuation provider against their Australian sourced income.

66. 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.

As discussed earlier, in order to be eligible to claim a deduction for personal superannuation contributions for the 2010-11 income year, your client is required to meet all of the conditions for deductibility under section 290-150 of the ITAA 1997 in relation to the 2010-11 income year including the 'maximum earnings as employee condition' in subsection 290-160(2).

As stated in paragraphs 65 and 66 of TR 2010/1, the Commissioner views the employment income of an Australian resident employed overseas will be counted in the maximum earnings test if the income is assessable income.

From the information you have provided, your client's gross assessable income, reportable fringe benefits and reportable employer superannuation contributions for the 2010-11 income year will be an estimated amount of $117,000. As all of the income amounts (100%) is attributable to activities that result in him being treated as an employee for the purposes of the SGAA, it becomes evident your client will not satisfy the 'maximum earnings as employee condition'.

In view of this he will not be eligible to claim a deduction for any personal superannuation contributions made to a complying superannuation fund in the 2010-11 income year.

As your client does not meet the requirements of section 290-160 of the ITAA 1997, there is no need to consider the conditions in sections 290-165 and 290-170.

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