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Ruling

Subject: Deduction for personal superannuation contributions

1. Do your two medical certificates satisfy the requirements for a disability benefit to be paid by a superannuation fund?

2. Will the personal superannuation contributions made to a constitutionally protected fund be deductible under section 290-150 of the ITAA 1997 for the 2012-13 income year?

Advice/Answers:

1. No.

2. No.

This ruling applies for the following period:

1 July 2012 to 30 June 2013

The scheme commenced on:

1 July 2012

Relevant facts:

You are under 55 years of age.

You terminated your employment in the 2012-13 income year on grounds of ill health.

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

You state that your gross income from all sources in the 2012-13 income year comprises salary and wages, gross business income, interest, reportable employer superannuation contributions, unused annual leave and unused long service leave and other income.

In addition to the above income, you plan to sell an asset and deposit the profit into the Fund in the 2012-13 income year.

You will give the Fund a notice of your intent to claim a deduction and you expect to receive an acknowledgement notice from the trustee of the Fund.

Relevant legislative provisions:

Income Tax Assessment Act 1997 Subsection 26-55(2).

Income Tax Assessment Act 1997 Paragraph 26-55(2)(a).

Income Tax Assessment Act 1997 Paragraph 26-55(2)(b).

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.

Income Tax Assessment Act 1997 Section 301-30

Income Tax Assessment Act 1997 Subsection 301-35(2).

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

Neither of the medical certificates provided satisfies the requirements for a superannuation payment to be a disability superannuation benefit.

You will not be eligible to claim a deduction for superannuation contributions as the maximum earnings condition has not been satisfied.

Detailed reasoning

Disability superannuation benefit

Section 995-1 of the Income Tax Assessment Act 1997 (ITAA 1997) states that:

disability superannuation benefit means a superannuation benefit if:

(a) the benefit is paid to a person because he or she suffers from ill-health (whether physical or mental); and

(b) 2 legally qualified medical practitioners have certified that, because of the ill-health, it is unlikely that the person can ever be gainfully employed in capacity for which he or she is reasonably qualified because of education, experience or training.

Certification from 2 legally qualified medical practitioners

In respect of this requirement, it must be demonstrated that the disability at the time of termination was such that:

...it is unlikely that the person can ever be gainfully employed in capacity for which he or she is reasonably qualified because of education, experience or training.

Therefore, under section 995-1 of the ITAA 1997 for a benefit to be a disability superannuation benefit, there must be the likelihood that the disability of the taxpayer will preclude the taxpayer from ever being employed in a role, for which the taxpayer is reasonably qualified.

The requirement that the disability is likely to result in the taxpayer being 'unable ever to be employed in a capacity for which he or she is reasonably qualified' extends to full-time employment, part-time or casual employment. A person who is not able to work full-time but can work part-time or as a casual in any employment for which the taxpayer is reasonably qualified will not receive the concessional treatment.

In this regard, the medical practitioners should not be restricting their certification to a person's duties just before termination of employment but should also take into account the person's capacity to perform other duties for which the person is qualified by education, training or experience.

You have provided certificates from two legally qualified medical practitioners. After examining the contents of the medical reports provided it is considered that neither report satisfies the requirement prescribed in the definition of disability superannuation benefit in section 995-1 of the ITAA 1997.

One doctor has only considered your health in relation to the position you occupied rather than your overall training, experience and education for you to be able to work in any employment.

In respect of the other doctor's certificate, while the doctor has considered both your employment history and skills, the doctor only certifies that you remain medically incapable of being employed rather than considering the future likelihood of you being employed.

Personal 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 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 in which the contribution is made.

The Fund is a complying superannuation fund by virtue of subsection 45(6) of the SISA. It is also a constitutionally protected fund.

If you make a contribution to the Fund in the 2012-13 income year, the complying fund condition will be satisfied.

Maximum earnings as an employee condition

Subsection 290-160(1) of the ITAA 1997 operates to apply the maximum earnings as an employee condition only if, in the income year in which the contribution is made, the person is engaged in any of the following activities (paragraph 290-160(1)(a)):

· holding an office or appointment (for example, a director of a company);

· performing functions or duties;

· engaging in work;

· doing acts or things; and

the activities result in that person being treated as an employee for the purposes of the Superannuation Guarantee (Administration) Act 1992 (SGAA).

For those persons who are engaged in any 'employment' activities in the relevant income year, subsection 290-160(2) of the ITAA 1997 prescribes that a deduction for personal contributions can only be claimed where the sum of their:

· assessable income

· reportable fringe benefits total and

· reportable employer superannuation contributions

attributable to the 'employment' activities is less than 10% of the total of that person's assessable income, reportable fringe benefits total and reportable employer superannuation contributions. This calculation is referred to as the 'maximum earnings test'.

The term 'reportable employer superannuation contributions' includes salary sacrifice contributions made for the person's benefit in that income year.

The maximum earnings as an employee condition applies to you

The employment activity condition outlined in subsection 290-160(1) of the ITAA 1997 has two parts. To satisfy this condition, therefore, a taxpayer must both:

· engage in any of the employment activities specified in paragraph 290-160(1)(a) of the ITAA 1997, and

· as a result be treated as an employee for the purposes of the SGAA, as specified in paragraph 290-160(1)(b) of the ITAA 1997.

The critical factor is whether you are or were engaged in an employment activity during the relevant income years. In your case, you were employed for a period in the 2012-13 income year. Therefore you were engaged in an employment activity during the 2012-13 income year and are an employee for the purposes of the SGAA.

As you will be 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, that is, the maximum earnings test will apply to you.

Applying the maximum earnings 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 maximum earnings test set out in subsection 290-160(2) of the ITAA 1997.

Paragraph 63 of Taxation Ruling TR 2010/1 entitled Income tax: superannuation contributions (TR 2010/1) states:

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…

Paragraph 64 of TR 2010/1 goes on to explain that assessable income includes salary and wages, allowances, employment termination payments, commission, director's remuneration, certain contract payments and worker's compensation payments received by a person who is still in employment.

Further, paragraph 254 of TR 2010/1 states that, for an individual, assessable income includes salary and wages, gross business income of a sole trader, gross rent from a solely owned property, interest, dividends, franking credits and net partnership income.

Your estimated assessable income, reportable fringe benefits and reportable employer superannuation contributions in the 2012-13 income year was provided.

Your assessable income, reportable employer contributions, unused annual leave and unused LSL attributable to employment activities for the 2012-13 income year should be less than10% of your total assessable income, reportable fringe benefits and reportable employer contributions.

However, your assessable income and reportable employer superannuation contributions, unused annual leave and unused LSL attributable to employment income for the 2012-13 income year exceeded the 10% threshold.

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

Age related conditions

Section 290-165 of the ITAA 1997 requires a taxpayer to have made the contribution before the day that is 28 days after the end of the month in which they turn 75 years of age.

This condition is satisfied as you will be under this age in the 2012-13 income year.

Notice of intent to deduct conditions

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

· the date the taxpayer lodges their income tax return; or

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

The taxpayer must also have been given an acknowledgement of the notice by the trustee of the superannuation fund.

You intend to provide a written notice to the fund stating your intention to claim a deduction for the personal superannuation contribution. You also expect to receive a written notice from the fund acknowledging the intention to claim a deduction for the personal superannuation contribution. Therefore this condition will be satisfied.

Deduction limits

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.

Conclusion

In your case, all the conditions for claiming a deduction have not been satisfied.

Consequently, you do not satisfy the requirements to claim a deduction under section 290-150 of the ITAA 1997 for the personal superannuation contribution of 20012-13 income year.

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