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Ruling

Subject: Personal superannuation contribution

Question

Can your client claim a deduction for a personal superannuation contribution to be made in the 2012-13 income year under section 290-150 of the Income Tax Assessment Act 1997?

Answer:

Yes

This ruling applies for the following period

Year ending 30 June 2013

The scheme commenced on

1 July 2012

Relevant facts and circumstances

Your client is over 65 and under the age of 70.

Your client ceased work with the employer in the 2011-12 income year.

During the 2012-13 income year your client is expecting to receive a substantial distribution from a discretionary trust controlled by your client's spouse.

You advised that for the 2012-13 income year, your client intends to derive income from part-time employment therefore your client will pass the work test for the purpose of enabling your client to make personal contributions to a complying superannuation fund.

You also advised that the income to be derived from part-time employment will not exceed X% of your client's total assessable income for the income year.

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

You understand that under the rules which govern the fund, your client is able to make personal superannuation contributions to the fund. In this light, your client intends to make a personal contribution to the fund in the 2012-13 income year.

Your client intends to provide a written notice to the Trustee of the fund, stating that your client intends to claim a deduction for this contribution. Your client also intends to receive a notice for the 2012-13 income year from the Trustee of the fund, acknowledging receipt of your client's notice of intent in respect of this contribution.

You have advised that a deduction for the proposed contribution will not add to or create a loss for your client in the 2012-13 income year.

You have also advised that the amount of the deduction your client will claim for the contribution is the entire proposed contributions.

Relevant legislative provisions

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(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.

Income Tax Assessment Act 1997 Subsection 290-165(2).

Income Tax Assessment Act 1997 Section 290-170.

Income Tax Assessment Act 1997 Section 290-175.

Income Tax Assessment Act 1997 Section 292-25.

Income Tax Assessment Act 1997 Subparagraph 292-25(2)(c)(iii).

Taxation Administration Act 1953 Section 359-20

Summary

Your client will be eligible to claim a deduction in respect of the personal contributions of to be made during the 2012-13 income year, provided:

· your client satisfies the work test;

· your client's employment income does not exceed 10% of your client's total assessable income;

· your client gives the trustee of the superannuation fund the required notice of intent to deduct; and

· the trustee of the superannuation fund acknowledges that notice; and

· the deduction does not add to or create a loss.

The deduction claimed is a concessional contribution in this income year.

Detailed Reasoning

Issue 1

Personal superannuation contributions made in the 2012-13 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).

However, subsection 290-150(2) of the ITAA 1997 provides that the conditions in sections 290-155, 290-160 (if applicable), 290-165 and 290-170 must all be satisfied before the person can claim a deduction for the contributions made in that income year. These conditions are explained in detail in Taxation Ruling TR 2010/1 (TR 2010/1) entitled 'Income Tax: superannuation contributions'.

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 you made the contribution.

In this case, your client proposes to make a personal contribution a complying superannuation fund. Therefore, your client will satisfy this condition.

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 2012-13 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 referred to as the 'maximum earnings test'.

In TR 2010/1, the Commissioner discusses the operation of the maximum earnings as employee condition.

The maximum earnings as an employee condition will not prevent a deduction for 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.

You have advised that your client will derive income from part-time employment during the 2012-13 income year. You also advised that your client's employment income will not exceed X% of your client's assessable income for the income year.

Provided your client satisfies the X% rule, section 290-160 of the ITAA 1997 will not operate to prevent your client from claiming a deduction for the proposed contribution she will make to the Fund in the 2012-13 income year.

Age-related conditions

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

As your client will be under age 75 at the time your client intends to make the proposed contribution to the fund during the 2012-13 income year, your client will satisfy the age-related conditions.

Notice of intent to deduct conditions

Section 290-170 of the ITAA 1997 provides that your client must give to the trustee of the complying superannuation fund (the fund trustee) a valid notice, in the approved form, of her intention to claim a deduction in respect of the contribution, and she must also have been given an acknowledgment of receipt of the notice by the fund trustee.

Section 290-170 of the ITAA 1997 also provides that your client must give her notice to the fund trustee by the earlier of the date she lodges her income tax return or the end of the income year following the year in which the contribution was made. In addition, the trustee is required to acknowledge your client's notice without delay.

A notice will be valid as long as the following conditions are satisfied:

· the notice is in respect of the contribution;

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

· at the time when the notice is given:

· your client is a member of the fund;

· the fund trustee 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 fund trustee 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 fund trustee has not rejected the application.

You have advised that your client will provide a valid notice of your client's intention to claim a deduction to the fund trustee in respect of the proposed contribution. You have also advised that your client will receive a written notice from the trustee acknowledging receipt of this notice of intent for the contribution. You assert that your client will meet the requirements of section 290-170 of ITAA 1997 once your client has taken these actions.

Provided your client lodges a valid notice of intent with the fund trustee before an income tax return for the 2012-13 income year is lodged or by 30 June 2014, whichever is the earlier, and the trustee duly acknowledges this notice, the notice of intent to deduct conditions under section 290-170 of the ITAA 1997 will be satisfied.

Deduction limited by amount specified in notice

Subsection 290-175 of the ITAA 1997 states that the deduction cannot be more than the amount covered by the notice given under section 290-170 of the ITAA 1997.

Provided the amount of the deduction your client will claim does not exceed the amount specified in her section 290-170 notice, your client will also satisfy this requirement.

Deduction limits

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 management losses) from a taxpayer's assessable income. Therefore a deduction for personal superannuation contributions cannot add to or create a loss.

You have advised that the deduction for the proposed contribution will not add to or create a loss in the 2012-13 income year. Therefore it is accepted that the deduction for the contribution will not create or increase a loss in this income year.

Conclusion

As your client will satisfy all the required conditions in subdivision 290-C of the ITAA 1997, your client can claim a deduction in the 2012-13 income year for the entire personal contribution they intends to make to the Fund in this income year.

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