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Ruling

Subject: Deduction for personal superannuation contributions

Question 1:

Are you eligible to claim a deduction for personal superannuation contributions under section 290-150 of the Income Tax Assessment Act 1997 for the 2011-12 income year?

Answer:

No.

This ruling applies for the following period:

1 July 2011 to 30 June 2012

The scheme commenced on:

1 July 2011

Relevant facts:

You are over 50 years of age.

In the 2011-12 income year you worked for a company (the employer).

The employer made salary sacrifice contributions for you in the 2011-12 income year.

In the 2011-12 income year the employer was taken over by another company and you were made redundant.

You commenced working for another organisation on a contract for a few months which was later extended.

In accordance with the payment system of this organisation you joined a trust company.

The trust company paid you a trust distribution each fortnight and withheld PAYG instalments.

The trust company did not make salary sacrifice contributions and gave you advice regarding the deductibility of personal superannuation contributions. They advised that superannuation guarantee is only payable for employees on salary and wages. You were not an employee and not paid salary and wages so any contribution you made or they made on your behalf would be considered as your personal contributions for which you would claim a tax deduction. The deductibility would be based on whether you were or had been an employee throughout the financial year. Personal contributions to superannuation have a limit as to how much you are able to contribute based upon age.

You made a personal superannuation contribution to an Industry Superannuation Fund (the Fund).

You gave the Fund a notice of your intent to claim a deduction and you have received an acknowledgement notice from the trustee of the Fund.

You have no exempt income or reportable fringe benefits in the 2011-12 income year.

Your income tax return for the 2011-12 income year shows the following:

· Salary and wages

· Employer Lump sum A payment

· Interest

· Dividends (franked amount)

· Franking credit

· Reportable employer superannuation contributions

· Trust distribution

· Gross rent

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 Section 290-165.

Income Tax Assessment Act 1997 Section 290-170.

Income Tax Assessment Act 1997 Section 292-15.

Income Tax Assessment Act 1997 Section 292-25.

Income Tax Assessment Act 1997 Section 995-1.

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

Superannuation Guarantee (Administration) Act 1992 Section 19.

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

Superannuation Industry (Supervision) Act 1992 Section 10.

Superannuation Industry (Supervision) Act 1992 Subsection 45(1)

Reasons for decision

Summary

One of the requirements in order to claim a deduction for personal superannuation contributions is that where a person is engaged in any activities that result in them being treated as an employee then less than 10% of the total of their assessable income, reportable employer superannuation contributions and reportable fringe benefits must be attributable to those activities.

You are considered a common law employee and therefore engaged in an employment activity for the period 1 July 2011 until 30 June 2012.

Your employment income relating to employment with your employer equals more than 10% of your total assessable income and reportable employer superannuation contributions in the 2011-12 income year.

Therefore, you are not eligible to claim a deduction for any personal superannuation contributions made in the 2011-12 income year.

Detailed reasoning

Deduction for personal superannuation contributions

Under section 290-150 of the Income Tax Assessment Act 1997 (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.

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 in which the contribution is made.

In this case, you made a contribution to an Industry Superannuation Fund, a complying superannuation fund in the 2011-12 income year and therefore this condition is satisfied.

Maximum earnings as employee condition

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:

· 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 has not been enacted).

Subsection 290-160(1) of the ITAA 1997 has two parts, firstly that the taxpayer engages in any of the activities specified in paragraph 290-160(1)(a), and secondly that the activities result in the taxpayer being treated as an employee for the purposes of Superannuation Guarantee (Administration) Act 1992 (SGAA).

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.

If the criteria of subsection 290-160(1) of the ITAA 1997 are satisfied, then subsection 290-160(2) of the ITAA 1997 needs to be considered. It states:

To deduct the contribution, less than 10% of the total of the following must be attributable to the activities:

· your assessable income for the income year;

· your reportable fringe benefits total for the income year.

· the total of your reportable employer superannuation contributions for the income year.

In essence, the relevant test is whether less than 10% of a taxpayer's assessable income, reportable fringe benefits and reportable employer superannuation contributions is attributable to activities that result in the taxpayer being treated as an employee for the purposes of the SGAA.

Employee at common law

Superannuation Guarantee Ruling SGR 2005/1 (SGR 2005/1) entitled 'Superannuation guarantee: who is an employee?' explains when an individual is considered by the Commissioner to be an 'employee' under subsection 12(1) of the SGAA, which states that:

12(1) Subject to this section, in this Act, employee and employer have their ordinary meaning. However, for the purposes of this Act, subsections (2) to (11):

(a) expand the meaning of those terms; and

(b) make particular provision to avoid doubt as to the status of certain persons,

The expression 'have their ordinary meaning' imports the common law definition of "employee". This means that, as explained by the Commissioner in paragraph 21 of SGR 2005/1, subsection 12(1) of the SGAA 'defines the term "employee" as having its ordinary meaning - that is, its meaning under common law'.

The Commissioner further notes that 'if a worker is held to be an employee at common law, then they will be an employee under the SGAA'. Hence in paragraph 8 of SGR 2005/1 the Commissioner also states that:

Under subsection 12(1) of the SGAA, if a person is an employee at common law, that person is an employee under the SGAA.

It is clear from paragraph 8 of SGR 2005/1 that the simple fact of being a common law employee results in an individual being treated as an employee for the purposes of the SGAA.

You were employed by the employer for some months in the 2011-12 income year. Accordingly, you were an employee under common law and were therefore an employee for the purposes of the SGAA during this period.

Therefore it is clear that you were a common law employee in the 20011-12 income year, even though it was for part of the income year. As you were an employee for the purposes of the SGAA, you satisfy the employment activity condition set out in subsection 290-160(1) of the ITAA 1997.

The maximum earnings as an employee condition

As you were an employee for SGAA purposes in the 2011-12 income year the maximum earnings as an employee condition will apply and any assessable income attributable to your employment is taken into account when applying the 10% test.

All amounts of assessable income, reportable fringe benefits and reportable employer superannuation contributions that are attributable to an employment activity are taken into account in applying the 10% test set out in subsection 290-160(2) of the ITAA 1997. The terms 'assessable income' and 'reportable fringe benefits' are given their statutory meaning when applying this test as stated in paragraphs 63 and 253 of TR 2010/1.

Assessable income

Paragraph 63 of TR 2010/1 states:

63. Assessable income, reportable fringe benefits total and reportable employer superannuation contributions are to be given their statutory meaning. In this regard, a person's assessable income is usually a gross amount worked out ignoring expenses incurred in gaining the income.

Further paragraph 254 of TR 2010/1 states that gross rent is included in assessable income.

The facts of this case state that you received the following amounts of assessable income in the 2011-12 income year:

· Salary and wages

· Employer Lump sum A payment

· Interest

· Dividends (franked amount)

· Franking credit

· Reportable employer superannuation contributions

· Trust distribution

· Gross rent

Your assessable income and reportable employer superannuation contributions attributable to employment income for the 2011-12 income year were more than the 10% threshold.

Consequently you do not satisfy the requirements that are prescribed under section 290-160 of the ITAA 1997.

As one of the conditions has not been satisfied, you are not eligible to claim the deduction. Therefore we do not need to consider the other conditions.

You have argued that no one told you about the restrictions to claiming a deduction for personal superannuation contributions. However, it is noted that the trust company advised you before the contribution was made that deductibility would be based on whether you are or have been an employee throughout the financial year.

This relates to the 'maximum earnings as employee condition' explained above, which has not been satisfied.

The Commissioner has no discretion to allow the deduction if all the required conditions have not been met.

As one of the conditions has not been met, we are not required to consider the other conditions.

Contribution limits:

Concessional contributions made to superannuation funds are subject to an annual cap. For the 2011-12 income year the cap is $50,000 for people aged over 50 years. Concessional contributions include employer contributions (including contributions made under a salary sacrifice arrangement) and personal contributions claimed as a tax deduction by a person.

As you are not eligible to claim a deduction, your contributions are not concessional contributions but are non-concessional contributions for which the cap is $150,000 for the 2011-12 income year.

Conclusion

You do not satisfy the requirements to claim a deduction under section 290-150 of the ITAA 1997 for the personal superannuation contribution in the 2011-12 income year.

Further issues for you to consider

As you have already lodged a notice with the Fund of your intent to claim a deduction, you may need to contact the Fund and vary your notice to nil to exclude the deduction claimed for the personal superannuation contributions.

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