| Disclaimer This edited version has been archived due to the length of time since original publication. It should not be regarded as indicative of the ATO's current views. The law may have changed since original publication, and views in the edited version may also be affected by subsequent precedents and new approaches to the application of the law. You cannot rely on this record in your tax affairs. It is not binding and provides you with no protection (including from any underpaid tax, penalty or interest). In addition, this record is not an authority for the purposes of establishing a reasonably arguable position for you to apply to your own circumstances. For more information on the status of edited versions of private advice and reasons we publish them, see PS LA 2008/4. |
Edited version of your written advice
Authorisation Number: 1012764084008
Ruling
Subject: Deductions for personal contributions
Question
Are income protection payments attributable to your client's employment activities for the purposes of section 290-160 of the Income Tax Assessment Act 1997 (ITAA 1997)?
Answer
No.
This ruling applies for the following periods:
Income year ending 30 June 2015
Income year ending 30 June 2016
The scheme commences on:
1 July 2014.
Relevant facts and circumstances
Your client was employed by the Employer.
In the 200X income year, your client purchased an income protection policy (the Policy).
The premiums for the Policy were paid by your client.
In the 200Y income year, your client's employment with the Employer was terminated after they were diagnosed with an illness.
Your client is not currently employed in any capacity.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 290-150.
Income Tax Assessment Act 1997 Section 290-160.
Income Tax Assessment Act 1997 Subsection 290-160(1).
Income Tax Assessment Act 1997 Paragraph 290-160(1)(a)
Income Tax Assessment Act 1997 Subsection 290-160(2).
Superannuation Guarantee (Administration) Act 1992 Subsection 6(1).
Reasons for decision
Summary
Income protection payments paid to your client are not attributable to their employment activities for the 2014-15 and 2015-16 income years.
Detailed reasoning
In accordance with section 290-150 of the ITAA 1997, a person who makes contributions to a superannuation fund for the purpose of providing superannuation benefits for themselves, can claim the deduction for contributions in the income year the contributions are made. However, to deduct the contributions, the person must satisfy a number of conditions, including the maximum earnings as employee condition set in section 290-160.
Subsection 290-160(1) of the ITAA 1997 applies the maximum earnings as an employee condition 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) of the ITAA 1997):
• 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, 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.
In Taxation Ruling TR 2010/1, the Commissioner discusses the operation of the maximum earnings as employee condition. In 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.
In accordance with paragraph 64 of TR 2010/1, all amounts that are 'attributable' to the 'employment' activity are taken into account as assessable income for the purposes of subsection 290-160(2) of the ITAA 1997. As far as relevant, these include:
• workers' compensation and like payments made because of injury or illness received by a person while holding the employment, office or appointment the performance of which gave rise to the entitlement to the compensation payments.
In this case, income protection payments, like workers' compensation payments, are made to your client to compensate them for the loss of employment income due to their illness. However, the employment that gave rise to your client's entitlement to the payments was terminated in the 200Y income year. As such, these payments are not attributable to the employment activity.
Based on the above, income protection payments received by your client in the 2014-15 and 2015-16 income years will not be attributable to employment activities in the 2014-15 and 2015-16 income years.
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).
