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Ruling

Subject: Deductibility of personal superannuation contributions

Issue

Question

Are you eligible to claim a deduction for personal superannuation contributions made to a complying fund during the 2012-13 income year under section 290-150 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Advice/Answer

Yes.

This ruling applies for the following period

Year ended 30 June 2013

The scheme commenced on

From 1 July 2012

Relevant facts

You have advised that your last employment activity was with an employer when your employment was terminated, on grounds of permanent incapacity, in the relevant income year.

All your entitlements including unused annual leave and unused long service leave were made during the relevant income year.

Since late 20XX, you have not been engaged in any eligible employment activity that resulted in you being treated as an employee for the purposes of superannuation guarantee.

Since late 20XX, the type of assessable income that you will receive is as follows:

The compensation you received from the compensation provider for your inability to work is reported in the income tax return under salary and wages at Item 1, as this being the only section available.

You are a member of a complying self managed superannuation fund (the Fund).

You will provide the trustee of the Fund with a valid notice in the approved form of your intention to claim a deduction for the personal contributions made in the 20XX-YY income year, and the trustee will acknowledge this notice prior to the lodging of your income tax return.

You are under the age or 65 years.

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

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

Reasons for decision

Summary of decision

You are entitled to claim a deduction for superannuation contributions made in the 20XX-YY income year provided the deduction does not add to or create a tax loss in that income year.

Detailed reasoning

Personal deductible superannuation contributions made in the 20XX-YY 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 ITAA 1997. However, the conditions in sections 290-155, 290-160, 290-165 and 290-170 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 you made the contribution.

In this case, you intend to make personal contributions to a complying superannuation fund (the Fund) in the 20XX-YY income year. Therefore the complying superannuation fund condition is satisfied.

Maximum earnings as an employee condition

Subsection 290-160(1) of the ITAA 1997 states:

(a) in the income year in which you make the contribution, you engage in any of these activities:

(i) holding an office or appointment;

(ii) performing functions or duties;

(iii) engaging in work;

(iv) doing acts or things; and

(b) 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).

Where a person is engaged in activities during the income year that would make them an employee for the purposes of the Superannuation Guarantee (Administration) Act 1992 (SGAA) then they will need to satisfy the 10% rule in order to claim a deduction for their personal superannuation contributions. It should be noted that the level of superannuation support by an employer or another person is no longer a relevant factor under this condition.

Subsection 290-160(2) of the ITAA 1997 states:

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

(a) your assessable income for the year;

(b) your reportable fringe benefits total for the income year.

Where the person engages in any 'employment' activities in the income year a deduction can only be claimed where the assessable income, reportable fringe benefits total, and (from 1 July 2009) reportable employer superannuation contributions attributable to the 'employment' activities are together less than 10% of the person's total assessable income, reportable fringe benefits total, and reportable employer superannuation contributions in the income year that the contribution is made. Further, if the person has more than one period of engaging in 'employment' activities in an income year, the assessable income, reportable fringe benefits total, and reportable employer superannuation contributions attributable to each period of 'employment' is aggregated.

The Commissioner has issued Taxation Ruling TR 2010/1 which deals with, among other matters, deductions for personal superannuation contributions. At paragraphs 57 and 58 of TR 2010/1, the Commissioner states:

57. 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.

58. Those persons who have not engaged in an 'employment' activity in the income year in which they make a contribution, such as persons who although receiving workers' compensation payments are not employed at any time during the year, are not subject to the maximum earnings test.

Furthermore, the Commissioner has given an example which refers to the 'maximum earnings test'. At paragraphs 88 and 89 of TR 2010/1 the Commissioner states:

88. Caitlin terminates her employment with Bling Pty Ltd on 30 June 2009 and was paid unused long service leave and annual leave on 3 July 2009. Caitlin made a contribution of $5,000 to her complying superannuation fund on 9 July 2009. Caitlin was not engaged in any employment activities for the 2009-10 income year.

89. As Caitlin was not engaged in any employment activities in the 2009-10 income year, she does not need to meet the earnings test in relation to her $5,000 contribution.

In this case, you ceased employment with an employer on grounds of permanent incapacity in relevant income year. Since then you have not been engaged in activities that would make you an employee for the purposes of the SGAA. Therefore, you are not required to meet the condition of the 10% rule.

Hence, section 290-160 of the ITAA 1997 does not apply in the 20XX-YY income year in which you will make personal superannuation contributions.

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 you are over age 50 and under age 75 when the proposed contributions are to be made, you will satisfy the age-related conditions.

Notice of intent to deduct conditions

Section 290-170 of the ITAA 1997 requires a person to provide a valid notice of their intention to claim the deduction to the trustee of their superannuation fund. The notice must be given before the earlier of:

In addition, you must also have been given an acknowledgement of the valid notice by the trustee of the superannuation fund.

You have advised that the trustee of the Fund will provide a valid written notice which states your intention to claim a deduction for personal superannuation contributions being made in the 20XX-YY income year and that the trustee will provide you without delay a notice acknowledging receipt of your notice prior to you lodging your income tax return.

Therefore, the notice of intent to deduct conditions under section 290-170 of the ITAA 1997 has been satisfied.

Deduction limits

From 1 July2007, the previous age based limit on deductions for personal superannuation contributions has been abolished. As a result a person can claim a full deduction for the amount of the contribution made up to the concessional contributions cap.

However, 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 year's tax losses and any deductions for farm management losses) from a taxpayer's assessable income. Thus a deduction for personal superannuation contributions cannot add to or create a loss.

Contribution limits

For the 2012-13 income year the concessional contributions cap is $25,000 for all individuals.

Concessional contributions include employer contributions (including contributions made under a salary sacrifice arrangement) and personal contributions claimed as a tax deduction by a person.

Conclusion

As you will satisfy all the conditions in sections 290-155, 290-160, 290-165 and 290-170 of the ITAA 1997 you are entitled to claim a deduction of up to $25,000 for concessional superannuation contributions made in the 2012-13 income year provided the deduction does not add to or create a tax loss in that income year.

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