Edited version of your private ruling

Authorisation Number: 1012370658981

This edited version of your ruling will be published in the public register of private binding rulings after 28 days from the issue date of the ruling. The attached private rulings fac sheet has more information.

Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. If you have any concerns about this ruling you wish to discuss, you will find our contact details in the fact sheet.

Ruling

Subject: Deduction for personal superannuation contributions

Questions

1. Do you need to satisfy the maximum earnings as an employee condition under subsection 290-160 of the Income Tax Assessment Act 1997 (ITAA 1997) for the 2008-09 income year?

2. Will your superannuation contribution be deductible under section 290-150 of the ITAA 1997 for the 2008-09 income year?

Answers

1. No.

2. Yes, to the extent that it does not add to or create a loss.

This ruling applies for the following period

Year ended 30 June 2009.

The scheme commenced on:

1 July 2008.

Relevant facts and circumstances

You are over 50 years of age.

You made a personal superannuation to your complying superannuation fund during the 2008-09 income year.

You have provided a statement confirming that the fund is a complying superannuation fund.

You have confirmed that the contribution was made for the purpose of providing superannuation benefits for retirement.

You wish to claim a deduction for the contribution in the 2008-09 income year.

You confirm that a valid notice under section 290-170 of the ITAA 1997 had been lodged with the trustee of your superannuation fund and that the trustee of that superannuation fund had acknowledged the notice.

You have provided a 'superannuation cash transactions' statement from your superannuation fund detailing the gross contribution less 15% withholding tax.

You provide services as a sole trader carrying on a business using your own Australian business number (ABN).

During the 2008-09 income year you were also engaged on a service contract (the Contract) with an entity (Entity 1).

Under the Contract you provided consultancy and administrative work for the set up and running of s specified service.

The Contract states that you are to provide your services as an independent contractor and you will be remunerated on the basis of services performed over a specified period.

The Contract specifies the services to be provided which include:

· The comprehensive medical care of patients in accordance with the entity's clinical policies, including appropriate referral to other doctors and health care professionals and maintenance of clinical records;

· The preparation of medical and other reports;

· Involvement as appropriate in teaching and researching;

· Participation in data collection, peer review, clinical audit and other quality improvement activities to improve patient care;

· Participation in administrative activities;

· Participation in an on-call roster as reasonably required;

· Services, as described above, at other correctional centres by mutual agreement; and

· The preparation and production of court reports as required.

The contract states the following:

· Ordinary hours of service are 80 hours per 4 week cycle.

· Remuneration per hour of service is X total which is made up of a base rate of A and a background practice allowance of B.

· Entity 1 will indemnify you for civil liability arising from any health care claim in respect to public patients in public hospitals or through health services under the control of the entity, and includes health care which Entity 1 directs to you to provide to public patients for and on behalf of another public health organisation.

· The abovementioned indemnity insurance does not cover any health care claim arising out of conduct constituting criminal offence or any other serious and wilful misconduct displayed by you.

· Where the health care claim involves a product manufactured and supplied by you, you will not be indemnified.

· The contract can only be terminated by Entity 1 when:

o An incident and/ or health care claims experience which the Fund Manager of Entity 1 considers warrants termination of the contract; or

o You do not promptly report in writing to Entity 1 any incident which could reasonably be expected to trigger the indemnity under the Contract in the future, as soon as you become aware of such an incident.

You have stated you managed a team of people. Whilst you would adhere to the policies and procedures of the entity, you had discretion to run your team as you saw fit. You have stated that you did report to a manager but they did not dictate how you were to manage the team or carry out the work.

You have stated that you used your own computer and car to carry out your services under the Contract, but you do not believe you would have had authority to hire third party labour.

You have advised that when you took leave you would arrange for someone internal (not external due to the nature of your work) to cover you and you would delegate your tasks to this person.

In addition to the indemnity insurance provided by Entity 1, you had acquired and maintained your own independent private insurance.

You have advised you have your own Medicare provider number.

You were registered with official boards and colleges.

You have advised that you very rarely claimed a reimbursement other than an occasional taxi fare from petty cash. If you were required to attend conferences/ trainings for Entity 1, they would pay for the cost on your behalf, rather than reimburse you for all costs associated with the conference/ training.

During the 2008-09 income year you worked 3-4 days a week in your private practice, as a sole trader, and 1-2 days per week for Entity 1 depending on work demands.

You were not entitled to annual leave, sick leave or long service leave.

In regards to the financial payment for your services to Entity 1, you were required to be registered for GST purposes and have an Australian Business Number (ABN). Entity 1 advised that you were liable for GST in connection with your services and as a result the amount you received from the entity would be increased by an amount equivalent to the GST payable by you.

As you provided your ABN, Entity 1 did not withhold tax on your behalf.

You have provided your assessable income details for the 2008-09 income year:

The salary and allowance from an entity (Entity 2) was included at item 1 of your income in your 2008-09 income tax return. You have stated that you provided some consultancy and lecturing work but were not an employee.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 290-150.

Income Tax Assessment Act 1997 Subsection 290-150(1).

Income Tax Assessment Act 1997 Subsection 290-150(2).

Income Tax Assessment Act 1997 Subsection 290-150(3).

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 290-170(1).

Income Tax Assessment Act 1997 Subsection 290-170(3).

Income Tax Assessment Act 1997 Section 292-15.

Income Tax (Transitional Provisions) Act 1997 Subsection 292-20(2).

Superannuation (Excess Concessional Contributions Tax) Act 2007) Section 4.

Superannuation (Excess Concessional Contributions Tax) Act 2007) Section 5.

Superannuation Guarantee (Administration) Act 1992 Section 12

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

Taxation Administration Act 1953 Subsection 357-110(1)

Reasons for decision

Summary

The substance of the contract between Entity 1 and yourself is that of a Contract for Services. As such, you are not engaged in activities with the entity that would result in you being considered as an employee for the purposes of the Superannuation Guarantee (Administration) Act 1992. Therefore, you do not need to satisfy the maximum earnings as an employee condition for the 2008-09 income year.

As all of the conditions for deductibility have been satisfied in relation to the 2008-09 income year, you are entitled to claim a deduction for the personal superannuation contribution you made to your nominated superannuation fund to the extent that it does not add to or create a loss.

Detailed reasoning

Deduction for 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 (or their dependants after their death) 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.

As you have provided a copy of a letter your nominated superannuation fund confirming it is a complying fund, this requirement is satisfied.

Maximum earnings as an employee condition:

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 the following must be attributable to those activities:

· their assessable income for the income year;

· their reportable fringe benefits for the income year; and

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

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:

(i) holding an office or appointment;

(ii) performing functions or appointment;

(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).

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

Where a common law employment relationship is not established, subsection 12(3) of the SGAA extents the definition to classify as an employee a person who works under contract that is wholly or principally for the labour of the person.

Whether a person is an employee is determined by examining the terms and circumstances of the contract, referring to the key indicators expressed in the relevant case law and examining a number of factors within the context of the relationship between the parties. No one indicator, of itself, is determinative and therefore, the totality of the relationship is considered.

Superannuation Guarantee Ruling SGR 2005/1 outlines the major indicators of a common law employment relationship to be:

· Control.

· Integration.

· Results.

· Delegation.

· Risk.

· Provision of tools and equipment and payment of business expenses.

· Control

Paragraph 33 of SGR 2005/1 states that a common law employee is told not only what work is to be done, but how and where it is to be done. It refers to the following statement made by Justice Dixon of the Full High Court in Humberstone v. Northern Timber Mills (1949) 79 CLR 389; (1949) 23 ALJ 584; [1950] VLR 44; [1949] ALR 985:

The question is not whether in practice the work was in fact done subject to a direction and control exercised by an actual supervision or whether an actual supervision was possible but whether ultimate authority over the man in the performance of his work resided in the employer so that he was subject to the latter's order and directions. …

Based on the facts it does not appear that Entity 1 exercised a great deal of control over how you were to perform your work. The facts state that you were free to exercise your discretion to manage your team as you saw fit, provided you would adhere to the policies and procedures of the entity. Whilst you did report to a manager, they did not dictate how you were to manage the team or carry out the work.

The contract is specific as to what duties you were to carry out, however, according to paragraph 35 of SGR 2005/1 this does not necessarily imply an employment relationship as a high degree of direction and control is not uncommon in contracts for services.

The above suggests that your contract with Entity 1 is more likely to reflect that of an independent contractor.

Integration

Paragraph 39 of SGR 2005/1 distinguishes between an employee and an independent contractor by identifying the difference between a person serving their employer within their employer's business and a person who is carrying on a trade or business of their own.

Further, reference is made to the Full High Court decision in Hollis v. Vabu Pty Ltd [2001] HCA 44; (2001) 106 IR 80; (2001) 75 ALJR 1356; (2001) 181 ALR 263; (2001) 2001 ATC 4508; (2001) 33 MVR 399; (2001) 47 ATR 559; [2001] Aust Torts Reports 81-615; (2001) 50 AILR 4-476; (2001) 207 CLR 21 where the workers were found to be operating within their employer's business as they were not running their own business, nor did they have independence in the conduct of their operations.

During the 2008-09 income year you operated your own private practice and also worked part time under a service contract with Entity 1.

The Contract states that you are to enter into the contract as an independent contractor. In a letter accompanying the contract you were advised that you were required to have your own ABN and be registered for GST purposes and tax is not withheld from your remuneration on your behalf. It is therefore clear that it was not the intention of Entity 1 to have you serve as an employee within their business.

Further, the facts state that you have your own Medicare provider number and are a registered with an official board.

Based on the above it is clear that you were operating a business in your own right under your own ABN and therefore had independence in the conduct of your operations. This provides a strong indication that you were engaged as an independent contractor.

Results

Where the nature of the contract is for the worker to produce a given result, there is a strong indicator that they are a contractor. Paragraph 42 of SGR 2005/1 quotes Justice Sheller of the NSW Court of Appeals in World Book (Aust) Pty Ltd v. Federal Commissioner of Taxation (1992) 27 NSWLR 377; (1992) 46 IR 1; (1992) 108 ALR 510; (1992) 23 ATR 412; (1992) 92 ATC 4327 (World Book):

Undertaking the production for a given result has been considered to be a mark, if not the mark, of an independent contractor.

Paragraph 43 goes on to state:

The 'production of a given result' means the performance of a service by a person who is free to employ their own means (such as third party labour, plant and equipment) to achieve the contractually specified outcome. Satisfactory completion of the specified service is the 'result' for which the parties have bargained. The consideration is often a fixed sum on completion of the particular job as opposed to an amount paid by reference to hours worked. If remuneration is payable when, and only when, the contractual conditions have been fulfilled the remuneration is usually made for producing a given result.

The Contract specified that you were to provide a range of services including medical care of patients, preparation of medical reports and court documents, teaching and research, data collection and participation in administrative activities. These appear to be of an ongoing nature.

There is limited evidence in the facts to indicate that the provision of these services constituted 'producing a given result'. According to the facts you used your own computer and car to carry out your services under the Contract; however you have also stated that you do not believe that you would have had the authority to hire third party labour. Further, your remuneration was based on reference to hours worked as apposed to a predetermined fixed sum and therefore your remuneration is not aligned with 'producing a given result'.

The above suggests that an employee/ employer relationship exists between Entity 1 and yourself. However, it is important to note that it is difficult to ascertain whether someone providing your services could 'produce a result' in the course of their work. As such the true nature of the results indicator is undetermined.

Delegation

Paragraph 48 of SGR 2005/1 states that if a person is contractually required to personally perform the work, this is an indication that the person is an employee. If an employee has unlimited power to delegate the work to others (with or without approval or consent of the principal), this is a strong indication that the person is being engaged as an independent contractor.

The facts state that when you took leave you would arrange someone internal to the organisation to cover you for the period of absence and you would delegate your tasks to this person. As such, you are not expressly required to personally perform the contracted services.

The above provides a strong indication that you were engaged by Entity 1 as an independent contractor.

Risk

Paragraph 51 of SGR 2005/1 states that where a worker bears little or no risk of the costs arising out of injury or defect in carrying out their work, they are more likely to be an employee. An independent contractor often carries their own insurance and indemnity policies.

According to the facts, Entity 1 provided indemnity insurance on your behalf for civil liability arising from any health care claim in respect to public patients in public hospitals, health services under the control of the entity, and health care which Entity 1 directed to you to provide to public patients for and on behalf of another public health organisation. However, where the health care claim involved a product manufactured and supplied by you, you will not be indemnified.

The facts also state that in addition to the indemnity insurance provided by the entity, you had acquired and maintained your own independent private insurance.

As you had certain insurances paid on your behalf whilst others were not, the nature of the risk indicator is unclear.

Provision of tools/equipment and payment of business expenses

Paragraph 52 of SGR 2005/1 states that the provision of assets, equipment and tools by an individual and the incurring of expenses and other overheads is an indicator that the individual is an independent contractor.

Paragraph 57 of SGR 2005/1 goes on to state that an employee, unlike a contractor, is often reimbursed for expenses incurred in the course of employment.

The facts state that you used your own computer and car to carry out your services under the Contract. The facts also state that you very rarely claimed a reimbursement other than an occasional taxi fare from petty cash. Training courses or conferences you were required to attend were paid for on your behalf rather than reimbursed.

This is more likely to reflect that that you are an independent contractor rather than an employee.

Other indicators

Other indicators of whether an employment relationship exists have been variously stated and have been added to from time to time. These include the right to suspend or dismiss the person engaged, the right to exclusive services of the person engaged, compulsory uniforms, provision of benefits such as annual, sick and long service leave and the provisions of other benefits prescribed under an award for employees.

From the facts you were not entitled to employee benefits such as annual, sick and long service leave. Further, termination could only occur if you had breached a clause in Contract and therefore not fulfilled the conditions of the Contract. This further suggests an independent contractor relationship exists between Entity 1 and yourself.

Through the analysis of various indicators, SGR 2005/1 identifies when an individual is considered to be an employee under subsection 12(1) of the SGAA. In this case, the indicators of control, integration, results contract, delegation, risk and the provision of tools/equipment and payment of business expenses have been considered.

Whilst the results and risk indicators were unclear, the other indicators of control, integration, delegation and provision of tools/ equipment and business expenses point towards you being engaged as an independent contractor. As such, you are not considered an employee under common law pursuant to section 12 of the SGAA.

However, as stated previously, where a common law employment relationship is not established, subsection 12(3) of the SGAA extents the definition to classify as an employee a person who works under contract that is wholly or principally for the labour of the person. This was to take into account some independent contractors who principally provide their own labour to meet obligations under a contract and to include a person who may not be an employee in the normal sense but who is in fact not very distinguishable from an employee.

'Labour' includes mental and artistic effort as well as physical toil.

The words 'wholly or principally' are used to limit or restrict the types of contracts that will be covered by subsection 12(3) of the SGAA.

Paragraph 72 of SGR 2005/1 states that from the decisions reached in Neale (Deputy Commissioner of Taxation) v. Atlas Products (Vic) Pty Ltd (1955) 94 CLR 419; (1955) 29 ALJ 28; (1955) 10 ATD 460; [1955] ALR 426; [1955] HCA 18 and World Book, it is clear that a person who has 'a right to delegate work' (whether or not that right is exercised) does not work under a contract wholly or principally for his or her labour and that a contract for labour must be distinguished from 'a contract to produce a given result'.

The ATO view is that some contracts for services will be wholly or principally for the labour of the individual contracted even though the individual is not a common law employee.

Paragraph 78 of SGR 2005/1 goes on to state:

Where the terms of the contract in light of the subsequent conduct of the parties indicates that:

· the individual is remunerated (either wholly or principally) for their personal labour and skills;

· the individual must perform the contractual work personally (there is no right of delegation); and

· the individual is not paid to achieve a result.

· the contract is considered to be wholly or principally for the labour of the individual engaged and he or she will be an employee under subsection 12(3).

The above circumstances have already been discussed during the 'results' and 'delegation' indicator analysis. It has been established that you did have the right to delegate. Per the above, if the person has a right to delegate all or some of their tasks to another person, the person is not working under a contract that is for his or her labour.

As such, the agreement between Entity 1 and yourself is not considered to be wholly or principally for your labour. Therefore, in respect of your contract with Entity 1 you are not considered an employee under the extended definition pursuant to subsection 12(3) of the SGAA.

Conclusion

In light of the foregoing you would not be considered an employee under section 12 of the SGAA in respect of the Contract between Entity 1 and yourself. Further, you have not engaged in any other activities that would result in you being considered an employee under the extended definition. Accordingly, the maximum earnings as an employee condition under section 290-160 of the ITAA 1997 will not apply to you for the 2008-09 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 you are under 75 years of age you meet this condition.

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:

· the date you lodge your 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.

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

A notice will be valid as long as the following conditions apply:

· the notice is in respect of the contributions;

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

· at the time when the notice is given:

· you are a member of the fund or the holder of the retirement savings account (RSA);

· the trustee or RSA provider 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 trustee or RSA provider 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 trustee or RSA provider to which you made the application has not rejected the application.

It has been confirmed that a valid notice under section 290-170 of the ITAA 1997 had been lodged with the trustee of your superannuation fund and that the trustee of this superannuation fund has acknowledged that notice. You have provided a 'superannuation cash transactions' statement from your superannuation fund detailing the gross contribution less 15% withholding tax.

As such, this requirement has been satisfied.

Deduction limits:

An 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 farm management deposits) from a taxpayer's assessable income. Thus a deduction for personal superannuation contributions cannot add to or create a loss in the relevant income year the deduction is to be claimed.

Contribution limits and the concessional contributions cap:

Concessional contributions made to superannuation funds in the 2008-09 income year are subject to an annual cap of $50,000. Concessional contributions include employer contributions (including contributions made under a salary sacrifice arrangement) and personal contributions claimed as a tax deduction by a person.

A person will be taxed on concessional contributions over the cap at a rate of 31.5% (section 292-15 of the ITAA 1997 and sections 4 and 5 of the Superannuation (Excess Concessional Contributions Tax) Act 2007).

However, between 1 July 2007 and 30 June 2012, a transitional concessional contributions cap will apply. The transitional concessional contributions cap is $100,000 for 2008-09 income year for people aged 50 or over (subsection 292-20(2) of the Income Tax (Transitional Provisions) Act 1997).

As you were over 50 years of age at the end of the 2008-09 income year, the concessional contributions cap of $100,000 will apply.

Conclusion:

As all of the conditions for deductibility under section 290-150 of the ITAA 1997 have been satisfied in relation to the 2008-09 income year, you are entitled to claim a deduction for the personal superannuation contribution you made to your nominated superannuation fund in that year to the extent that it does not add to or create a loss.

Copyright notice

© Australian Taxation Office for the Commonwealth of Australia

You are free to copy, adapt, modify, transmit and distribute material on this website as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products).