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Ruling

Subject: Deduction for personal superannuation contributions

Question 1

Is the taxpayer entitled to a deduction for personal superannuation contributions while living in an overseas country?

Answer

Yes

This ruling applies for the following periods:

2012-13 income year

The scheme commences on:

1 July 2012

Relevant facts and circumstances

You are a non-resident for tax purposes who is working in an overseas country.

You intend to buy an investment property in Australia which you expect to derive rental income.

You are currently working as a full time employee in the overseas country.

You anticipate deriving income from employment in the overseas country during the 2012-13 income year which is assessable in that country.

You do not expect to derive any further employment income from any other sources.

In addition to your employment income, you also expect to derive interest income and rental income from Australian sources.

You intend to make superannuation contributions to a public offer fund which is a complying Australian superannuation fund in the 2012-13 income year.

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 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 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 960-285.

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

Reasons for decision

Summary of decision

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

Detailed reasoning

Deductions for personal superannuation contributions

A person must satisfy the conditions in section 290-150 of the Income Tax Assessment Act 1997 (ITAA 1997) before they can claim a deduction in respect of personal contributions made for the purpose of providing superannuation benefits for themselves or their dependants after their death.

Further, 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) titled '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 the contribution is made.

In this case, you intend to make a personal superannuation contribution to a complying superannuation fund (the Fund). If the Fund is a complying superannuation fund, then this requirement will be satisfied.

Maximum earnings as an employee condition

The condition in section 290-160 of the ITAA 1997 is 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 ten percent (10%) of the total of their assessable income and reportable fringe benefits must be attributable to those activities.

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

This section applies if:

(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).

In this case you are employed on a full time basis at beginning of the 2012-13 income year. Therefore, you are an employee for the purposes of the SGAA during the 2012-13 income year. Consequently, section 290-160 of the ITAA 1997 applies to you in the 2012-13 income year.

Where section 290-160 of the ITAA 1997 applies to a person, subsection 290-160(2) of the ITAA 1997 states that:

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 income year;

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

(c) the total of your reportable employer superannuation contributions for the income year.

This means that in order to satisfy the condition set out under section 290-160 of the ITAA 1997, your total assessable income attributable to employment must be less than 10% of your total assessable income and reportable fringe benefits for the 2012-13 income year.

Generally a foreign resident must lodge an income tax return in Australia and pay tax on any Australian sourced income, except from interest, unfranked dividends and royalties which Australian tax has already been withheld.

In the 2012-13 income year, you estimate that you will receive a salary from your employer in the overseas country. As you are a non-resident for tax purposes, this salary will not form part of your assessable income and is not considered in the maximum earnings test.

You also anticipate receiving interest income from your Australian bank account, Australian sourced rental income and dividends during the 2012-13 income year. As your employment income from Australian sources is nil, it will be less than 10% of your total assessable income for the 2012-13 income year, the condition under section 290-160 of the ITAA 1997 will be satisfied.

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 will be under 50 years of age when the proposed contributions are to be made, you will satisfy the age-related conditions.

Notice of intent to deduct conditions

Subsection 290-170(1) of the ITAA 1997 provides that for a person to be eligible for a deduction for a personal superannuation contribution, the person must give a valid notice of their intention to claim the deduction to the trustee of their superannuation fund (the fund trustee), and must receive an acknowledgment of receipt of the notice.

Paragraph 290-170(1)(b) of the ITAA 1997 states:

the notice must be given before:

(i) if you have lodged your income tax return for the income year in which the contribution was made on a day before the end of the next income year - the end of that day; or

(ii) otherwise - the end of the next income year;

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

In this case, you intend to provide the trustee of the superannuation fund with a written notice stating your intention to claim a superannuation deduction for personal superannuation contributions made in the 2012-13 income year. You fully expect that the trustee will acknowledge receipt of your notice. Provided this occurs then the notice of intent to deduct conditions under section 290-170 of the ITAA 1997 will be satisfied.

Deduction limits

A person can claim a full deduction for the amount of the contribution made. 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

From 1 July 2007, concessional contributions made to superannuation funds will be subject to an annual cap. Concessional contributions include employer contributions (including contributions made under a salary sacrifice arrangement) and personal contributions claimed as a tax deduction by a person.

Please note that for contributions made during the 2012-13 income year, the concessional contributions cap is $25,000.

Conclusion

Providing you satisfy the conditions in sections 290-155, 290-160, 290-165 and 290-170 of the ITAA 1997, you will be entitled to claim a deduction for personal 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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