Edited version of private advice

Authorisation Number: 1012633925027

Ruling

Subject: Deductibility of personal superannuation contributions

Question

Can the taxpayer make a personal deductible superannuation contribution in the 2013-14 income year?

Answer

No.

This ruling applies for the following periods:

2013-14 income year

The scheme commences on:

1 July 2013

Relevant facts and circumstances

During the 2013-14 income year (from 1 July 2013 to 30 June 2014), your client was employed by an employer and received gross wages. The majority of your client's wages were received in the first few months of the income year, and your client's employment hours since have been at a minimum level.

You anticipate that the reportable fringe benefit will be an amount in your client's PAYG Summary for the 2013-14 income year (which reflects the fringe benefits tax (FBT) year of 1 April 2013 to 31 March 2014).

In addition to the gross wages from the employer and reportable fringe benefit your client anticipates that in the 2013-14 income year your client will also receive a net capital gain (after a 50% CGT discount has been applied) and a total amount for interest, dividend and net rental income.

The company that administers the salary packaging has split the fringe benefits into two periods, 1 April 2013 to 30 June 2013 and 1 July 2013 to 31 March 2014. In a report the administrators have allocated the appropriate amount to the 2013-14 income year. In relation to the 2013-14 income year, the salary sacrificed amount was an amount which equates to a reportable fringe benefit. It is anticipated that no fringe benefits or salary packaging will occur between 1 April 14 and 30 June 2014, and that the amount reflects the reportable portion that falls into the 1 July 2013-14 income year.

In the 2013-14 income year, the taxpayer's salary was an amount before salary packaging deductions. The employer paid superannuation of an amount which is 9.25% of that amount.

Your client is under 65 years of age.

Your client wishes to claim a personal superannuation contribution in the 2013-14 income year.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 4-10(2).

Income Tax Assessment Act 1997 Subsection 290-150.

Income Tax Assessment Act 1997 Section 290-155.

Income Tax Assessment Act 1997 Subsection 290-160.

Income Tax Assessment Act 1997 Subsection 290-165.

Income Tax Assessment Act 1997 Subsection 290-170.

Income Tax Assessment Act 1997 Subsection 995-1.

Superannuation Guarantee (Administration) Act 1992 Section 12.

Fringe Benefits Tax Assessment Act 1986 Section 135P(1).

Reasons for decision

Summary

As your client's income and reportable fringe benefits from employment will be greater than ten percent of your client's total assessable income and reportable fringe benefits for the 2013-14 income year, the condition under section 290-160 of the ITAA 1997 has not been satisfied. Therefore, your client is not eligible to claim a deduction for any personal superannuation contributions made in the 2013-14 income year.

Detailed reasoning

Personal deductible superannuation contributions

Under section 290-150 of the Income Tax Assessment Act 1997 (ITAA 1997) a taxpayer can claim a deduction in respect of personal contributions made to a superannuation fund or retirement savings account (RSA) for the purpose of providing superannuation benefits for the taxpayer.

However, the conditions in sections 290-155, 290-160, 290-165 and 290-170 of the ITAA 1997 must all be satisfied before a taxpayer can claim a deduction for the contributions made in that income year.

Maximum earnings as an employee condition:

Your request specifically concerns whether your client meets the condition in section 290-160 of the ITAA 1997.

Section 290-160 of the ITAA 1997 requires that for the 2013-14 income year, if a person is engaged in any of the following activities:

• 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) assuming that subsection 12(11) of the SGAA had not been enacted, then the total of that person's assessable income and reportable fringe benefits attributable to the activities must be less than 10% of their total assessable income and reportable fringe benefits for the income year.

Section 12 of the SGAA states that the terms employee and employer have their ordinary meaning for the purposes of the SGAA. Superannuation Guarantee Ruling SGR 2005/1 (SGR 2005/1) entitled Superannuation guarantee: who is an employee? explains when an individual is considered by the Commissioner to be an employee under section 12 of the SGAA.

The Commissioner notes, at paragraph 8 of SGR 2005/1, that if a worker is held to be an employee at common law, then they will be an employee under the SGAA.

It is clear from the foregoing that the simple fact of being a common law employee results in an individual being treated as an employee for the purposes of the SGAA.

In the present case, it is accepted that your client was employed by an employer, and was engaged in activities which related to your client's employment. Your client was paid a salary and received reportable fringe benefits in the 2013-14 income year.

The contractual relationship between your client and the employer would fall within the meaning of employment and your client is considered to be an employee both within the ordinary meaning of the term and for the purposes for the SGAA in the 2013-14 income year.

This means that your client must satisfy the condition set out under section 290-160 of the ITAA 1997, being that your client's total assessable income and reportable fringe benefits attributable to your client's duties as an employee must be less than ten percent of your client's total assessable income and reportable fringe benefits for the 2013-14 income year.

You advised that your client's assessable income for the 2013-14 income year is an amount and reportable fringe benefits for the FBT year (1 April 2013 to 31 March 2014) is an amount. Your client's total assessable income and reportable fringe benefits for the 2013-14 income year is an amount.

Your client's total assessable income and reportable fringe benefits attributable to your client's duties as an employee is more than ten percent of your client's total assessable income and reportable fringe benefits for the 2013-14 income year. Consequently, the condition under section 290-160 of the ITAA 1997 will not be satisfied.

As the condition in section 290-160 of the ITAA 1997 has not been satisfied, it is not necessary to determine whether the other conditions of 290-155, 290-165 and 290-170 of the ITAA 1997 have been satisfied.

Income year in respect of reportable fringe benefits

You raised an issue concerning the appropriate 'income year' to which the reportable fringe benefits received by your client properly relate.

You advised that you anticipate that your client's PAYG Summary for the 2013-14 income year will contain a reportable fringe benefit of an amount which reflects the FBT year from 1 April 2013 to 31 March 2014. In that respect, you pointed out that part of the reportable fringe benefits that you anticipate to be included in the Payment Summary were not received in the actual 2013-14 income year but were in respect of the period 1 July 2012 to 30 June 2013 (the 2012-13 income year).

One of the fundamental principles of statutory interpretation is that where a word is used consistently in legislation it should be given the same meaning consistently. This principle was clearly explained by Justice Hodges in Craig Williamson Pty Ltd v Barrowcliff [1915] VLR 450; (1915) 37 ALT 62; (1915) 21 ALR 349:

I think it is a fundamental rule of construction that any document should be construed as far as possible so as to give the same meaning to the same words wherever those words occur in that document, and that that applies especially an Act of Parliament, and with especial force to words contained in the same section of an Act. There ought to be very strong reasons present before the Court holds that words in one part of a section have a different meaning from the same words appearing in another part of the same section.

As such, the phrase 'income year' should be read to mean the same thing throughout section 290-160 of the ITAA 1997, and indeed throughout the rest of the ITAA 1997. The term 'income year' is specifically defined in the ITAA 1997 and there is no reason to read any different meaning into the terms used in section 290-160.

Section 995-1 of the ITAA 1997, in relation to the term 'income year', refers to the 'basic meaning' given by subsection 4-10(2). Subsection 4-10(2) states that the 'income year' is the same as the 'financial year' except in certain specific cases (relating to companies and substituted accounting periods).

Section 995-1 of the ITAA 1997 defines 'financial year' as:

...a period of 12 months beginning on 1 July.

As such, the phrase 'income year' as used in section 290-160 of the ITAA 1997 refers to the period from 1 July to 30 June.

The above view appears to equate a reportable fringe benefits amount with an FBT year. However, these are two completely different matters. A reportable fringe benefits amount is reported on a person's Payment Summary for an income (financial) year. The amount comes from the employer calculating benefits given to the employee during their FBT year (a FBT year only applies to an employer) but the FBT year itself has no impact for the employee. The reportable fringe benefits amount impacts on an employee and relates to an income (financial) year.

The relationship between a reportable fringe benefits amount and the FBT year is explained in the Explanatory Memorandum to the A New Tax System (Fringe Benefits Reporting) Act 1999, (which introduced the concept of reportable fringe benefits) as follows:

1.54 An employee has a reportable fringe benefits amount for a year of income where the employee's individual fringe benefits amount for the year of tax ending on 31 March in the year of income exceeds $1,000 for that particular employer. [New subsection 135P(1)]

1.55 The reportable fringe benefits amount relates to a year of income as it is included on a group certificate for the income year ending 30 June. However, the individual fringe benefits amount is calculated in relation to a year of tax, that is, a FBT year ending on 31 March. For example, a fringe benefit that arises on 15 June 2000 will be included in the individual fringe benefits amount for the year of tax ending 31 March 2001. Where the individual fringe benefits amount for that year in respect of a particular employer is greater than $1,000, the amount (after being grossed-up) will be included in the reportable fringe benefits amount for the year of income ending 30 June 2001.

It is clear from the above explanation that the term 'reportable fringe benefits amount' only relates to an income year, and that the term 'income year' should be read consistently throughout section 290-160 of the ITAA 1997 as meaning the financial year from 1 July to 30 June.

There is no basis for applying the employment activity test to a FBT year as well as an income year.

From the facts of the case, your client was engaged in employment activities during the FBT year from 1 April 2013 to 31 March 2014. You advised that you anticipate that your client's PAYG Summary for the 2013-14 income year will contain a reportable fringe benefit of an amount for the FBT year from 1 April 2013 to 31 March 2014. The amount of reportable fringe benefit in your client's PAYG Payment Summary for the 2013-14 income year should be reported in your client's income tax return for the 2013-14 income year.

Conclusion

Your client cannot claim a deduction for a personal deductible superannuation contribution in the 2013-14 income year as your client's income and reportable fringe benefits from employment will be greater than ten percent of your client's total assessable income and reportable fringe benefits for the 2013-14 income year.

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