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Ruling

Subject: Personal superannuation contributions

Question

Is your client entitled to claim a deduction for personal superannuation contributions made in the 2008-09 income year?

Answer

No.

This ruling applies for the following period

Year ending 30 June 2009

The scheme commenced on

1 July 2008

Relevant facts

Your client is between 55 and 65 years of age.

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

In the relevant income year, your client made a personal superannuation contribution to the Fund.

Your client provided a written notice to the trustee of the Fund which stated their intention to claim a deduction in respect of the contribution made in the relevant income year.

In the subsequent income year, your client commenced a superannuation pension with the Fund based, in part, on that contribution made in the relevant income year.

The trustee of the Fund has acknowledged the notice in respect of the contribution made in the relevant income year.

In the relevent income year your client was employed by the employer for a short period of time. Your client retired from that employment on a specific retirement date.

Your client lodged their income tax return for the relevant income year without claiming the personal contribution as a superannuation deduction.

An income tax assessment was issued to your client for the relevant income year.

Your client's assessable income in the relevant income year included gross salary, net capital gains, dividends and interest.

Over X% of your client's assessable income was due to their activities as an employee.

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 Subsection 290-180(1).

Income Tax Assessment Act 1997 Subsection 290-180(3A)

Income Tax Assessment Act 1997 Paragraph 290-180(3A)(c)

Income Tax Assessment Act 1997 Subsection 295-190(1).

Superannuation Guarantee (Administration) Act 1992 Section 12.

Reasons for decision

Summary

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 and reportable fringe benefits must be attributable to those activities before they can claim a deduction in respect of personal superannuation contributions in the 2008-09 income year.

In this case your client is engaged in activities that result in them being treated as an employee. Your client's employment income relating to employment is more than X% of their total assessable income and reportable fringe benefits in the relevant income year.

Therefore, your client is not eligible to claim a deduction for any personal superannuation contributions made in the relevant income year.

Detailed reasoning

Personal deductible superannuation contributions:

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, 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.

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, your client is a member of a complying superannuation fund (the Fund). Therefore, this requirement is satisfied.

Maximum earnings as an employee condition

In the 2008-09 income year, 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 their assessable income and reportable fringe benefits must be attributable to those activities. 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 has not been enacted).

Subsection 12(1) of the SGAA states that the terms employer and employee have their ordinary meaning. Subsections 12(2) to (11) of the SGAA expand the meaning of those terms and make provision to avoid doubt as to the status of certain persons.

Taxation Ruling TR 2010/1 entitled 'Income Tax: superannuation contributions' (TR 2010/1) explains the Commissioner's view on the rules that apply if a personal contribution is to be deducted. In regards to whether a person is an employee for the purposes of the SGAA, TR 2010/1 states at paragraph 59:

A person will be engaged in an 'employment' activity if they are engaged in an activity in the income year that results in them being treated as an employee for the purposes of the SGAA. The term 'engaged' is not defined and takes its ordinary meaning. One of several meanings given to engage is 'busy or occupied; involved'. Another meaning is 'under an engagement' where the ordinary meaning of 'engagement' is given as 'under an obligation or agreement'.

In this case, your client was employed by the employer during the relevant income year. It is considered that your client was engaged in activities that results in them being treated as an employee for the purposes of the SGAA.

This means that in order to satisfy the condition set out under section 290-160 of the ITAA 1997, your client's total assessable income and reportable fringe benefits attributable to that employment must be less than 10% of their total assessable income and reportable fringe benefits for the 2008-09 income year.

Applying the ten per cent rule

The facts of this case state the assessable income that your client received in the relevant income year.

It is evident from the above that your client's employment income with the employer is greater than X% of their total assessable income. Your client does not have any reportable fringe benefits for the relevant income year. Consequently, section 290-160 of the ITAA 1997 has not been satisfied.

Notice of intent to deduct conditions

Section 290-170 of the ITAA 1997 requires that the person making a contribution must provide a notice of intent to claim a deduction (the notice) to their superannuation fund. The notice must be given before the earlier of:

· the date your client lodge them income tax return for the income year in which the contribution was made; or

· the end of the income year following the year in which the contribution was made.

This condition is satisfied as your client provided a valid notice under section 290-170 of the ITAA 1997 to the trustee of the Fund and the trustee of the Fund acknowledged that notice.

Further to the above it should be noted that as a consequence of a valid notice being lodged and acknowledged under section 290-170 of the ITAA 1997, a contribution covered by a valid notice represents assessable income of the superannuation fund under Item 1 of the table in subsection 295-190(1). This in effect means that the 15% tax paid on the contribution covered by the notice represents a tax liability to be paid by the superannuation fund and not tax paid by the member.

Variation of a notice of intent to deduct conditions

In accordance with subsection 290-180(1) of the ITAA 1997 a person cannot revoke or withdraw a valid notice of intent in relation to a personal contribution. A valid notice can be varied under section 290-180 subject to a number of restrictions.

Where a valid notice under subsection 290-170(1) of the ITAA 1997 has been lodged with, and acknowledged by, the trustees of the Fund, the Fund can not accept a variation of that notice in certain circumstances. Subsection 290-180(3A) states:

The variation is not effective if, when you make it:

(a) you were not a member of the fund or the holder of the RSA; or

(b) the trustee or RSA provider no longer holds the contribution; or

(c) the trustee or RSA provider has begun to pay a superannuation income stream based in whole or part on the contribution. (bold emphasis added)

It can be seen from the above that paragraph 290-180(3A)(c) of the ITAA 1997 prevents a person from varying a valid notice where the fund trustee has commenced to pay an income stream based in whole or part on the contribution.

In the present case, after the personal superannuation contribution was made; the trustee of the Fund started to pay a superannuation income stream to your client based in whole or part on that contribution. Therefore, the notice cannot be varied.

Please note, that this legislation does not provide the Commissioner with the discretion to allow the variation of a notice where the conditions in subsection 290-180(3A) of the ITAA 1997 have not been met.

Age-related condition

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.

Your client meets this age-related condition.

Conclusion

As the condition in section 290-160 of the ITAA 1997 has not been satisfied, and all the conditions in that section must be satisfied in order to claim a deduction therefore, your client is not eligible to claim a deduction for any personal superannuation contributions made in the relevant income year.

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